A tale of two earnings calls - and our AI was on the right side of it

October has been a month of rotation rather than direction, and Wednesday, Oct. 28, offered a clear example. Wall Street closed higher for a third consecutive session, with the S&P 500 up 0.28% to 7,743.98, the Nasdaq Composite up 0.27% to 26,549.85, and the Dow Jones Industrial Average up 0.19% to 52,475.10. Gains were concentrated in specific sectors: technology rose about 0.8%, while financials also supported the market. Utilities and real estate fell as the 10-year Treasury yield moved above 5%, according to session recaps from The Motley Fool and Capp Notes.

After the closing bell, two of the world’s largest companies reported results within minutes of each other, but their stocks moved in opposite directions. Investing.com’s ProPicks AI held one of the stocks that rose. Microsoft Corp. (NASDAQ: MSFT) has been a holding in the Dominate the Dow strategy since July 1 and is up 38.4% from the model’s entry price.

The strategy and why it held Microsoft

Dominate the Dow has a focused mandate within the US line-up: “Our AI analyzes all 30 blue chip stocks to pinpoint the 10 strongest stocks each month for market-beating returns.” The strategy selects 10 stocks from a universe of 30 and rebalances monthly, reassessing Microsoft’s position against the other candidates. The model has held the stock since entering at $383.56 on July 1. Microsoft closed Wednesday’s regular session at $531.01, up 38.4% since entry and 3.6% in October.

Microsoft’s results beat expectations

Microsoft’s fiscal 2027 first-quarter results, covering July through September 2026, exceeded consensus estimates for revenue and earnings.

Revenue reached $92.279 billion, up 19%, compared with consensus estimates of about $90.61 billion. Operating income rose 21% to $45.9 billion, with an operating margin of 50%. Net income was $36.6 billion, up 32%, while diluted GAAP earnings per share rose 32% to $4.92. EPS excluding the effects of OpenAI investments was $4.89, up 18%.

Cloud growth was a key part of the results. Microsoft Cloud revenue reached $63.9 billion, up 30%. Azure revenue grew 48%, from $22.4 billion to $33.165 billion, accelerating from 40% growth a year earlier. Commercial remaining performance obligations, which represent contracted revenue yet to be recognized, reached $677 billion, up 73%, with roughly $203 billion expected to convert within the next 12 months.

Microsoft also changed its reporting segments for FY27. The previous Intelligent Cloud, Productivity and More Personal Computing structure was replaced by Agents and Infra, with $76.8 billion in revenue, up 25%, and $40.6 billion in operating income, and Devices and Consumer, with $15.5 billion in revenue. The new structure changes how investors can assess the company’s business lines and their contribution to results.

The risks investors are watching

Microsoft’s results also highlighted several areas of concern.

Capital expenditures reached $45.2 billion, up 30%, while cash paid for property and equipment was $39.4 billion, up 103% year over year, alongside another $7.4 billion in finance leases. Commercial bookings fell 12%, which management attributed to difficult comparisons with unusually large Azure commitments in the prior-year period. Revenue from Devices and Consumer declined 3%.

The combination of a 50% operating margin and rising infrastructure spending makes the conversion of Microsoft’s contracted backlog particularly important. If Azure growth slows toward 40% while spending remains elevated, margin pressure could become a concern.

After-hours price moves varied across media reports: CNBC reported a gain of about 4%, while Capp Notes cited about 2.6%. These figures should therefore be treated as indicative rather than definitive.

Alphabet fell after earnings

Alphabet Inc. (NASDAQ: GOOGL), which is not held by the model, fell 10.42% after hours, from $322.22 to $288.35. The decline followed an earnings report in which earnings per share fell short of expectations, despite revenue coming in slightly above consensus.

Revenue reached $127.6 billion, up 25%, slightly ahead of expectations. Google Cloud revenue grew 103% to $30.7 billion, with $11.1 billion in operating income. EPS was $2.12, compared with $3.02 expected. The shortfall was attributed mainly to a negative $8.2 billion in other income and expense, driven by an unrealized loss on Alphabet’s SpaceX stake. This was a below-the-line item rather than a decline in operating performance.

However, the results came as Alphabet outlined full-year capital expenditure guidance of $195 billion to $205 billion. With investors increasingly focused on how AI investments translate into financial returns, the spending outlook may have added to concerns surrounding the results.

Elsewhere, the Federal Reserve held its policy rate at 3.75%–4.00% in a 10–2 vote. Governors Lisa Cook and Beth Hammack dissented in favor of a 25-basis-point increase, while Chair Kevin Warsh said the December decision would depend on incoming data. Semiconductor stocks rose 1.75% after SK Hynix reported a sevenfold increase in quarterly profit and forecast a memory supply shortage lasting into 2030. Lam Research gained about 5%, Applied Materials rose 4%, KLA added 3%, and Micron advanced 5.86%, according to 24/7 Wall St.

Two other positions to watch

Apple Inc. (NASDAQ: AAPL) is another megacap holding in Dominate the Dow. The strategy has held the stock since Dec. 1, 2025, at $282.33. Apple closed Wednesday at $343.83, up 21.8% since entry and 4.1% in October. The company is scheduled to report fiscal fourth-quarter results after the close on Thursday, Oct. 29, making the report a key near-term event for the strategy.

Penguin Solutions Inc. (NASDAQ: PENG), held in the Mid-Cap Movers strategy, provides exposure to the memory and computing-infrastructure cycle highlighted by SK Hynix’s outlook. The stock rose from $54.98 to $60.80 in October, a gain of 10.6%, and remains above the model’s entry price. No company-specific news drove Wednesday’s move; its performance reflects broader sector momentum, which could reverse if expectations for a prolonged memory shortage prove premature.

Strategy performance and the wider line-up

Dominate the Dow returned 4.9% in October and is up 20.0% in 2026, outperforming the Dow Jones Industrial Average by 10.9 percentage points. Since launch, the strategy has returned 70.8%, or 13.0 percentage points more than its benchmark. Its results reflect stock selection within a universe of large, widely followed companies, rather than exposure to smaller or less established businesses.

Across the US strategies, 2026 returns show Mid-Cap Movers ahead of its benchmark by 35.3 percentage points (up 46.1%), Energy Elite by 28.0 points (up 76.0%), Small-Cap Sprinters by 20.5 points (up 33.2%), Dominate the Dow by 10.9 points (up 20.0%), and Healthcare Heroes by 8.4 points (up 25.1%). With the 10-year Treasury yield above 5%, differing views on the Fed’s next move, and investors scrutinizing returns on AI spending, performance across these strategies offers one way to compare how their selections have fared in the current market environment.

Want to see the full list of AI-picked stocks? Explore InvestingPro and access ProPicks AI’s monthly stock selections.

How Investing.com’s AI-Powered Stock Picker Works

At the beginning of each month, our proprietary AI system evaluates thousands of global equities using historical data, valuation signals, and forward-looking growth metrics.

By processing more than 15 years of financial data across more than 150 quantitative models, the engine identifies up to 20 high-conviction stocks per strategy based on their projected medium-term upside potential.

Each month, the strategies undergo a rebalancing process. New opportunities may be added, existing holdings may be retained, and stocks that no longer meet the criteria may be removed.

Each strategy uses equal weighting across its selected stocks to track performance. Investors can choose their own allocations, while the equal-weighted structure provides a consistent benchmark for evaluating the model’s results.

The aim is to identify companies with a combination of momentum, valuation and business performance that the models indicate may support medium-term upside.

*Live performance is recorded since the official launch of the Beat the S&P 500 strategy in October 2023.

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