The AI craze has made a triumphant return to Wall Street, with investors eagerly jumping back into the market. Standout quarterly performances from tech giants Microsoft and Alphabet, combined with the successful IPO debut of Rubrik, have reignited the AI narrative and fueled renewed confidence in the growth potential of big tech's investments in cutting-edge tools.

Alphabet's shares reached an all-time high on Friday, surpassing a remarkable market cap milestone of $2 trillion for the first time. Meanwhile, Microsoft's shares climbed 1.8%, solidifying its market value at slightly over $3 trillion. "The AI investment story is intact," affirmed Yung-Yu Ma, Chief Investment Officer at BMO Wealth Management U.S., speaking to Yahoo Finance.

The outstanding results from Microsoft and Google, along with Tesla's AI play led by Elon Musk, propelled the S&P 500 and Nasdaq to their best performance of the year. "They're delivering on earnings," said Nicole Inui of HSBC, expressing confidence in the sector's strength throughout the second half of the year.

Microsoft announced that AI services contributed significantly to a 31% revenue increase in its Azure cloud division. Meanwhile, Google's cloud revenue surged by 28% year-on-year, largely driven by the increasing contributions from AI. "The commentary from both Google and Microsoft tells us that there is real demand for AI," noted Rishi Jaluria, an analyst at RBC Capital Markets.

Bank of America's Michael Hartnett further supported the belief that the current dominance of narrow mega-cap growth in the market will persist until recession concerns materialize. Additionally, the potential of AI extends far beyond Microsoft and Google, the usual frontrunners in the AI race. Brad Erickson, an internet analyst at RBC Capital Markets, believes that Meta's recent selloff following earnings was an overreaction and predicts that AI will be a transformative driver for the company.

The surge in AI-related stocks comes just ahead of crucial earnings reports from Amazon and Apple, which will serve as critical tests for the AI tech trade in light of sky-high valuations. The market eagerly anticipates the outcomes of these reports.

The renewed enthusiasm surrounding AI stocks underscores the tangible demand and capital being invested in this rapidly evolving sector. As AI continues to drive innovation and growth, investors are increasingly recognizing its transformative potential across various industries.

Seana Smith, an anchor at Yahoo Finance, expertly analyzes the resurgence of AI stocks in the latest episode of the Opening Bid podcast, providing valuable insights for traders looking to capitalize on this trend. For any tips on deals, mergers, activist situations, or other market news, Smith can be reached via email at seanasmith@yahooinc.com.