Nasdaq Bounces Back as AI Trade Freshens Up: Stock Market Today
What might be the stock market's most critical industry right now returned to its winning ways, with many fundamental questions soon to be answered.
Chip stocks caught bids for the first time in 10 trading sessions on Monday, though the main equity indexes were mixed as Treasury yields resumed their climb. It's relatively quiet as far as incoming economic data this week. But markets have plenty of fresh information to consider, with two of the Magnificent 7 stocks set to report third-quarter operating and financial numbers.
At the closing bell, the tech-heavy Nasdaq Composite was up 1.1% at 26,430, and the broad-based S&P 500 had added 0.4% to 7,690. But the blue-chip Dow Jones Industrial Average was lower by 0.07% at 51,966.
Consumer discretionary stocks and tech stocks posted outsized gains amid a relatively narrow rally, while the VanEck Semiconductor ETF (SMH, +1.6%) posted a positive intraday return for the first time since October 5.
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Nvidia (NVDA, +1.4%) was well in the green, while fellow Magnificent 7 stocks Meta Platforms (META, -0.6%) and Tesla (TSLA, +3.8%) prepare to offer the market the first look at the trend-setting group's recent results after the closing bell on Wednesday.
"Despite the pullback in the AI trade, the S&P 500 ended last week only 2% below its all-time high," E*TRADE from Morgan Stanley Managing Director Chris Larkin observes. "With a light economic calendar this week, traders should be more focused on earnings, but as has been the case for the past few weeks, oil prices and Treasury yields will likely play a major role in market sentiment."
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The 2-year Treasury yield was up 3.6 basis points to 4.772%, while yields on the 10-year (+4.4 bps, 5.142%) and the 30-year (+3.9 bps, 5.476%) also popped again on Monday. The front-month West Texas Intermediate crude oil futures contract, meanwhile, declined by 0.7% to $98.38 per barrel from $101.41 on Friday.
Like Larkin, Louis Navellier of Navellier & Associates would rather focus on earnings: "I am expecting 33% average third-quarter earnings growth for the S&P 500. It is literally impossible to be bearish in the midst of such stunning earnings announcements, so please enjoy the ride."
Why AMZN is a "Top Pick"
Amazon (AMZN, +5.0%) was No. 1 among the 30 Dow Jones stocks on Monday after Morgan Stanley named it a "Top Pick" based on a favorable risk-reward profile, as well as five catalysts for as much as 40% upside from its closing price on Friday.
According to analyst Brian Nowak, Amazon Web Services will continue to deliver outsize top-line growth on its way to $1 trillion in revenue. AWS growth will, in turn, support earnings power. Its Bedrock service is well-placed to drive generative AI across the economy and is "a potential multiple expander."
Amazon also enjoys competitive advantages when it comes to agentic AI. And the e-commerce giant is emerging as a physical AI winner, too, with efficient adoption of robotics at its fulfillment centers.
Nowak reiterated his Overweight (Buy) rating and raised his 12-month target price from $335 to $350, noting a three-to-one risk-reward ratio based on a downside "bear skew" to $220.
The analyst also cites the bigger top line for AWS, as well as Amazon's "ability to operate as a 'rule of 90' company," which means the sum of its annual revenue growth rate and its profit margin is equal to or greater than 90%.
INTC gets an upgrade
Intel (INTC, +2.4%) traded up to $142.35 intraday and closed at $139.63 on June 30. The semiconductor stock closed at $89.85 on Friday, almost 40% from its recent highs.
That was enough for J.P. Morgan analyst Harlan Sur to upgrade the chipmaker to Neutral (Hold) from Underperform (Sell). The analyst maintained his 12-month target price of $85, as the risk-reward for INTC now "is much more balanced."
Sur notes concerns about the sustainability of AI infrastructure spending, but he says "increasing agentic AI workloads (CPU intensive) and a very tight supply chain for leading edge silicon should drive continued positive" earnings revisions when management reports third-quarter results on October 29 and through 2027.
According to S&P Global, 15 Wall Street analysts have Buy ratings on INTC, vs 33 who rate the AI stock a Hold, and now just one who says it's a Sell. The average 12-month target price is $118.05.
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