The first-quarter financial results for FY2026 from leading overseas TMT (Technology, Media, and Telecommunications) companies reveal that, propelled by robust demand for AI computing and AI-enhanced core businesses, top tech firms have upwardly revised their revenue and profit forecasts. Nevertheless, a number of these companies have concurrently raised their capital expenditure outlooks, exerting pressure on short-term free cash flow. Over the medium to long term, the influence of AI investment on profitability is deemed manageable. It is anticipated that overall operating profit growth will sustain above 20% from FY2027 to FY2028, with the free cash flow ratio potentially experiencing a turning point post-FY2028.

Following the release of earnings reports, the software sector has witnessed a general rebound in valuations and consistent upward adjustments to profit expectations, yet performance across the sector varies. The enterprise application software segment maintains stability, while the infrastructure software segment demonstrates more promising results, buoyed by AI trends. Looking ahead, the ability of companies to secure high returns and Return on Invested Capital (ROIC) from the AI investment surge will be crucial in bolstering short-term performance stability and fostering sustainable medium- to long-term profit growth. This will be a determining factor in their financial health and stock valuations. Recommended stocks include Microsoft, Google, Amazon, Palo Alto Networks, and Meta.