For the first time since early June, the S&P 500 closed at an all-time high — and it got there on the back of the same AI trade that spent all of July being torn apart.
The S&P 500 climbed 1.79% to a record 7,736.52, its first fresh high in nearly two months, while the Dow Jones Industrial Average surged 907.47 points, or 1.71%, to a record 54,085.88 — clearing 54,000 for the first time just one session after topping 53,000. The Nasdaq Composite jumped 2.59% to 26,584.99, and the Nasdaq-100 rose more than 3% as the technology comeback that began late last week gathered unstoppable momentum. It was the market’s second consecutive record-setting session to open August, extending a run that has now added roughly 8% to the Nasdaq in a matter of days.
The fuel was the same potent combination as Monday: fading Middle East tensions pulling oil and bond yields lower, and a torrent of strong corporate earnings. But Tuesday added a new accelerant — Palantir’s blowout quarter — that reignited the AI-software and semiconductor trades and reminded a nervous market why it fell in love with artificial intelligence in the first place.
Index Performance
Rates, Dollar, Commodities
Palantir’s “Otherworldly” Quarter
Palantir was the spark. The stock soared 29% — its best single day since February 2024 — after reporting second-quarter results that CEO Alex Karp described as “otherworldly,” driven by surging demand for what he called AI sovereignty. The company beat on both the top and bottom lines, delivered a roughly 20% EPS surprise, raised its full-year revenue guidance, and saw its US commercial revenue climb 90% year-over-year. Deutsche Bank upgraded the stock to Buy.
The significance extended well beyond Palantir itself. After a July in which the market obsessed over whether AI spending would ever pay off, Palantir delivered exactly the kind of demand-side validation the bulls needed — proof that enterprise and government customers are not just buying compute, but paying up for AI software at scale. Karp’s report, landing alongside the cloud-earnings sweep from Microsoft, Amazon, and Alphabet, helped complete the market’s rehabilitation of the entire AI thesis.
The Chip Comeback Accelerates
The semiconductor sector, fresh off its worst month since 2008, extended its recovery with force. The PHLX Semiconductor Index jumped 6%, with Micron gaining more than 7% and Marvell Technology surging nearly 13% following a well-received keynote at the Flash Memory Summit. Intel and Nvidia rode the momentum higher, and a widely circulated research note argued that Micron could overtake SK Hynix as the world’s second-largest DRAM supplier — a bullish reframing of the memory-share dynamic that had been a source of anxiety just a week earlier.
A separate policy catalyst added fuel. Reuters reported that the Trump administration is weighing a ban on imports of new Chinese optical transceiver products — components critical to connecting servers within AI data centers. The prospect of shutting Chinese suppliers out of the US market sent domestic optical-communications names sharply higher, with Coherent (COHR), Lumentum (LITE), Fabrinet (FN), and Applied Optoelectronics (AAOI) all rallying on the news. The move dovetailed with the broader “buy American semiconductors” rotation that has been building as US-China tech tensions escalate.
Caterpillar Leads the Dow, Earnings Season Shines
Beyond the AI names, the day’s breadth was underpinned by another strong earnings showing. Caterpillar was the Dow’s biggest gainer, rising more than 5% to surpass its intraday record from last month, after beating second-quarter estimates and raising its revenue-growth guidance. The industrial bellwether cited strong equipment demand from the AI data-center buildout sweeping the country, and said its full-year tariff-cost outlook should land at the lower end of its prior range — a rare piece of good news on the trade front. McDonald’s also topped estimates.
The broader scorecard remains excellent: more than 84% of S&P 500 companies that have reported this season have beaten expectations, according to FactSet. Layered on top, Goldman Sachs raised its Q3 US GDP tracking estimate to 2.7%, strengthening rather than weakening the soft-landing narrative — a backdrop that continues to reward cyclical and AI-linked names alike.
The Iran De-escalation Deepens
The geopolitical tailwind that launched Monday’s rally strengthened on Tuesday. Treasury Secretary Scott Bessent told CNBC that the US is “currently in dialogue with the Iranian side” and that a deal to reopen the Strait of Hormuz and normalize the conflict could be reached “today or tomorrow.” Qatar added that a draft agreement had been prepared, noting that the Qatari Emir and President Trump had discussed de-escalation measures. Separately, reports emerged that Iran is considering allowing European nations to conduct mine-clearing operations in the strait.
The cascade of diplomatic signals pushed oil lower again and kept a lid on the 10-year Treasury yield, sustaining the favorable macro backdrop. One caveat lingered: as with Monday, the reports carried conflicting signals about whether formal talks were actually scheduled, leaving some room for disappointment if the timeline slips.
On the data front, the June JOLTS report showed job openings easing while actual hires ticked modestly higher — a gradually cooling but still-functioning labor market that does little to force the Fed’s hand in either direction.
After the Bell: AMD and SpaceX Both Slip
The earnings drama continued after the close, and for once, two strong reports drew tepid reactions.
AMD beat on both revenue and earnings, with data-center revenue more than doubling year-over-year — a genuinely strong result. But the stock fell in extended trading because its third-quarter revenue guidance, while solid, failed to clear the elevated bar the market had set after weeks of AI enthusiasm. It was the same “great isn’t good enough” dynamic that punished Samsung, TSMC, and Alphabet earlier in the season: when expectations run this hot, meeting them isn’t sufficient.
SpaceX delivered its first earnings report as a public company, and the results were better than feared — revenue grew 92% year-over-year, and both the top line and the loss came in ahead of expectations. But the stock fell more than 8% at one point before paring to around a 5% decline at roughly $118, as investors focused on capital expenditure that surged to $18.4 billion amid an aggressive expansion of AI-related investment. The timing added pressure: the report landed just two days before SpaceX’s first post-IPO share lockup begins to expire, raising the specter of fresh supply hitting a stock that has traded below its $135 issue price for weeks.
Bottom Line
Tuesday confirmed that the late-July washout has given way to a full-throated recovery. The S&P 500 and Dow are back at record highs, the semiconductor index has rallied hard off its worst month since the financial crisis, and Palantir’s blowout gave the AI-software trade a demand signal it badly needed. With 84% of companies beating estimates, oil falling on Iran de-escalation, and Goldman lifting its growth forecast, the fundamental backdrop is as constructive as it has been all summer.
But the after-hours reactions to AMD and SpaceX are a reminder that the bar is now extraordinarily high. The market has repriced the AI trade back toward euphoria in a matter of days, and at these levels, good earnings that merely meet expectations are being sold. The SpaceX lockup expiration looms as a near-term supply overhang, and the Iran de-escalation — while promising — still hinges on talks that both sides describe differently. The rally has its momentum back; the question is whether the fundamentals can keep clearing a bar that keeps rising.
Leave a Reply