Dow and S&P 500 Hit Records on AI Earnings: When Will the Bubble Burst?

Upbeat earnings from Caterpillar and Palantir Technologies (PLTR) drove the Dow Jones Industrial Average and S&P 500 to record closes on Tuesday, easing concerns over artificial intelligence (AI) spending.

The Dow gained 907 points, or 1.71%, to close at 54,091.42. The S&P 500 rose 1.79% to 7,736.52. The Nasdaq Composite jumped 2.59% to a record 26,584.99.

AI Earnings Beat the Street

Caterpillar raised its annual revenue growth forecast as AI data center construction drove demand for its power-generation equipment. Its stock jumped 5.6%, the single biggest boost to the Dow.

Palantir’s blowout earnings drove an even bigger move. Shares climbed 29.5% after the company raised its own annual revenue forecast, marking its best single-day gain since February 2024.

Optimism extended well beyond those two stocks. Of the 304 S&P 500 companies that had reported second-quarter results, 85.2% beat estimates, versus a long-term average of 67.5%, according to Reuters.

Investors view semiconductor stocks as AI beneficiaries, and those shares rose for a fourth straight session. The Philadelphia Semiconductor Index climbed 6.6% and extended its rebound after tumbling 20.6% in July.

The Rally Went Global

Technology shares and a wave of corporate earnings updates pushed the pan-European STOXX 600 to a record close, up 0.73% to 656.86. MSCI’s All Country World Index gained 1.30% and hit an intraday record too.

Oil added fuel to the rally. Brent crude fell 5.3% to $79.36 a barrel on hopes for a diplomatic resolution to the Iran war that could reopen the Strait of Hormuz to more shipping. The drop pushed September rate-hike odds down to 56.9% from 67.2% and sent two-year Treasury yields to a two-week low.

Not Everyone Is Convinced

Not every voice on Wall Street shared the enthusiasm. Jack Ablin, chief investment strategist at Cresset Capital Management, raised that note of caution even as records piled up.

“I don’t sense one ounce of skepticism among investors, from oil to interest rates to equities. The earnings reports were certainly supportive, and that’s great news, but I’m not sure a handful of earnings reports justifies new records in the S&P.”

Oliver Pursche, senior vice president at Wealthspire Advisors, saw it differently, pointing to “stronger earnings and stronger expectations” behind the mood.

That split showed up again hours later. SpaceX’s debut earnings beat Wall Street on revenue, up 92% year over year, yet shares fell roughly 8% in after-hours trading once results landed.

Ablin’s caution points to a real question. Does a rally built on a handful of earnings beats justify fresh records, or is the market pricing in AI demand that has yet to prove durable?

Tuesday’s numbers don’t settle it, and the rest of earnings season should offer more evidence.