Spectacular SpaceX. The world's most famous rocket and AI company blasted off into the stratosphere Wednesday, soaring 7.8% thanks to its stellar earnings from the day before.
The bullish numbers and outlook helped boost the broader market, as well as tech and other space stocks in particular. The Dow Jones Industrial Average was up 0.7%. The S&P 500 rose 0.6% and the Nasdaq Composite rallied 1.1%.
"The market isn't giving up on AI. Investors simply want to see the payoff, and SpaceX earnings may be an early sign of that," said Mark Hackett, chief market strategist for Nationwide, in a report Wednesday.
Elon Musk's other company, Tesla, reported earnings after the closing bell Wednesday. The stock rose 3.4% in regular trading leading up to the report, but it lost some of that momentum after hours following its weaker-than-expected results. Musk said during SpaceX's earnings call Tuesday that the two companies have set up committees to discuss a possible merger.
Meta Platforms, which gained slightly Wednesday ahead of its own earnings release, reported results after the closing bell that topped forecasts, rallying the stock after hours. Investors seemed to shrug off today's other development: A $25 billion privacy penalty for the company ordered by a New Mexico judge. The company's earnings seemed to further prove Meta's reputation has transformed from an AI laggard to one of the emerging winners, thanks to its new Muse agent.
AI-related stocks have been nothing if not volatile though, Meta and SpaceX included. Just look at 1-month stock charts of Micron Technology, CoreWeave and other companies that are building blocks of the artificial-intelligence trade. But Joe Zidle, chief market strategist at Cresset, said in an interview with Barron's that he wouldn't be too concerned about the short-term moves for tech stocks.
"There is still more to play out with AI spending and capex. It's an incredible once-in-a-lifetime buildout," Zidle said. "We're conscious of the idea that in all these innovation booms, there is a first phase that benefits the builders. Earnings are telling us that we're still in that phase and that it could go on longer than people expect."
That may be true. It's also encouraging to see that AI isn't having a negative impact on the labor market just yet, as many have feared it would. The latest weekly jobless claims figures, due out Thursday morning, are expected to come in at 200,000 -- a relatively low number.
Still, the recent setbacks for chip stocks and other AI trades illustrate that investors will need strong stomachs (and maybe some Dramamine) to withstand the ups and downs of this market.
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The Hot Stock: Skydance +10.9% The Biggest Loser: AT&T -6.5%
Best Sector: Information Technology +1.6% Worst Sector: Communication Services -1.4%
Anthropic IPO Faces Challenges Ahead
Call it a study in contrasts. SpaceX's earnings are a shot in the arm for the AI trade. But at the same time, there is increased skepticism about how Claude owner Anthropic will fare once it goes public. There's some speculation that the company could file its IPO paperwork by the end of the week.
The Wall Street Journal reported Tuesday that according to a draft of Anthropic's prospectus, the company lost $80.7 billion in the first half of the year. Even though a majority of that figure is due to accounting, the company is still bleeding red ink.
My colleague Nate Wolf warned that AI pure plays are facing tepid demand from investors, citing the weak performance of South Korean company Elice when it began trading in Seoul, as well as the cancelled IPO of Australia's Firmus Grid. Nate writes:
Anthropic's debut is no longer shaping up as a crowning celebration for the AI revolution. Instead, the offering...is becoming a major test for the AI trade.
Christine Sol, investment strategist with SEIA, agrees. She told Barron's that investors are going to cast a much more skeptical look at Anthropic's spending and any forward guidance the company gives about growth. "The Anthropic IPO will be the bellwether for the AI trade. It's a huge mile marker," she said.
So even as Wall Street cheers the results from SpaceX, investors shouldn't forget that it may be difficult, if not impossible, for the AI bull run to continue, unless Anthropic proves that it can be a viable public company.
The Calendar
Barclays, Bloom Energy, Blackstone, CBRE Group, Comcast, Deckers Outdoor, Dover, Dow, Honeywell International, Huntington Bancshares, Lockheed Martin, Nasdaq, Newmont, Nokia, Norfolk Southern, PG&E, Procter & Gamble, PulteGroup, Quest Diagnostics, Roper Technologies, Snap-On, Spotify Technology, Tractor Supply, Union Pacific, Valero Energy, VeriSign, and Western Digital announce quarterly results tomorrow.
-- Dan Lam
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