Dow Jones futures rise on Fed rate pause expectations, AI tech rally
- US index futures gain as traders price in an 85% probability of unchanged rates, though Chair Warsh offers no definitive signal.
- Strong pre-market gains in Super Micro, Dell, and HPE boost market sentiment and technology outlooks.
- SpaceX surged on robust Q3 revenue and Tesla merger talks, while Netflix drops on slowing growth.
Dow Jones futures hold steady near 52,730 during European hours on Wednesday. S&P 500 futures surge 0.25% to trade around 7,770, while Nasdaq 100 futures rise by 0.71% to trade near 29,880.
US stock futures gained as investors weighed interest rate expectations, with the CME FedWatch Tool indicating an 85% probability that the Federal Reserve will hold interest rates steady next week. Fed Chair Kevin Warsh maintained a neutral stance, emphasizing that he does not "prejudge" interest rate decisions. This has left markets without a definitive signal on whether the central bank will raise or hold rates steady at its upcoming October policy meeting.
Despite the monetary policy uncertainty, market sentiment turned positive on the back of robust corporate earnings, driven largely by artificial intelligence-related equities. Super Micro Computer surged over 13% in pre-market trading following strong preliminary results, sparking renewed confidence in AI spending and lifting stocks across the sector. Hardware manufacturers Dell Technologies and Hewlett Packard Enterprise both advanced, alongside neocloud providers CoreWeave and Nebius Group.
SpaceX shares jumped 8% after reporting a massive 161% year-over-year surge in third-quarter revenue to $14.58 billion. The stock was further bolstered by Elon Musk's disclosure that SpaceX and Tesla have formed special committees to explore a potential merger. Conversely, Netflix shares dropped over 5% after the streaming giant reported its slowest revenue growth in three years and projected a fourth consecutive quarter of decelerating growth.
Analysts at Deutsche Bank describe “another 24 hours of uncertainty and volatility,” with markets initially hit by “a widespread morning sell-off dominated by AI concerns, higher oil prices and ongoing worries over French sovereign debt.” However, they note that the tone shifted as “the US came in,” and the session “turned into a more positive” one, ultimately driving “the S&P 500 to close +0.28% higher as the index saw the most daily advancers since April.”
AI stocks FAQs
First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.
There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.
Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.
Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.
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