* Microsoft ( MSFT ) soars after forecasting upbeat sales, cloud

growth

* Meta drops after quarterly free cash flow plunges 91%

* Traders trim Sept rate hike expectations

(Updates with market close)

By Noel Randewich

July 30 (Reuters) - Wall Street ended sharply higher on

Thursday, with chip stocks jumping and Microsoft ( MSFT ) soaring after

the technology giant gave a stellar forecast that eased fears

about massive spending on AI infrastructure.

Microsoft ( MSFT ) jumped by a double-digit percentage after

the technology company forecast quarterly sales and cloud growth

above expectations. It also reported capital expenditures below

estimates and said it expects to keep generating cash through

its fiscal 2027 that has just begun.

This year, investors have been spooked by heavy spending on

AI at big technology firms. Negative cash-flow reports from

Alphabet and Tesla last week sparked a bout

of selling in AI-linked stocks, with chip stocks also under

pressure as investors questioned high valuations.

Meta Platforms ( META ) tumbled after the social media

heavyweight reported a 91% drop in second-quarter free cash

flow, indicating the financial strain of its costly AI buildout.

"These are true battleground stocks. Investors can't make up

their minds whether the ROI on the massive capex spending is

going to be worthwhile or not," said Jed Ellerbroek, portfolio

manager at Argent Capital Management.

"Microsoft ( MSFT ) delivered yesterday, and maybe Microsoft ( MSFT ) is going

to be able to move itself from the 'battleground' camp to be a

'trusted AI winner' stock," Ellerbroek said.

The PHLX chip index surged,with Micron Technology

Sandisk and Advanced Micro Devices ( AMD )

making big gains.

Amazon ( AMZN ) rose and Apple ( AAPL ) dipped, with both

companies set to report their results after the market closes.

Amazon's ( AMZN ) stock has underperformed the broader market this

year due to concerns about heavy spending on AI. Apple ( AAPL ),

which has not spent heavily on AI, recently overtook Nvidia ( NVDA )

to become the world's most valuable company, with a

market value of about $4.9 trillion.

According to preliminary data, the S&P 500

gained 124.60 points, or 1.70%, to end at 7,440.75

points, while the Nasdaq Composite gained 679.24 points,

or 2.76%, to 25,118.17. The Dow Jones Industrial Average

rose 607.28 points, or 1.18%, to 52,201.42.

On Wednesday, U.S. stocks closed sharply lower after the

Federal Reserve left interest rates unchanged, with mixed

messages from new Fed Chair Kevin Warsh leaving traders confused

about the path of borrowing costs.

Bond markets remained on edge, with the yield on the 30-year

Treasury bond surging to its highest level in 19

years.

Traders are now only pricing in a 59% chance for a rate hike

at the Fed's September meeting, according to CME FedWatch, down

from 82% a week ago.

U.S. economic growth slowed in the second quarter as the

trade deficit widened. The economy grew at a 1.5% rate, slower

than estimates of 2.1% growth, data showed. A separate reading

also showed U.S. inflation slowed in June.

Qualcomm ( QCOM ) fell after the chipmaker forecast

fourth-quarter profit below estimates and said revenue from

Apple ( AAPL ) products would decline faster than expected.

Fair Isaac ( FICO ) slumped. Even though the credit-scoring

giant lifted its annual profit and revenue forecasts, they

remained below analysts' estimates.

Starbucks ( SBUX ) rose after the world's largest coffee

chain raised its annual sales and profit forecasts.

Analysts on average expect S&P 500 aggregate second-quarter

earnings to jump 40% from a year ago, with AI-related stocks

accounting for much of that growth, according to LSEG I/B/E/S.

Strong earnings forecasts and a recent decline in share

prices have left the S&P 500 trading at about 20 times expected

earnings, just above its 10-year average of 19, according to

LSEG data.