By Johann M Cherian and Shashwat Chauhan
Aug 4 (Reuters) - The S&P 500 and the Dow hit record highs on Tuesday after strong forecasts from Caterpillar and Palantir reassured investors about AI-driven demand, while hopes for an imminent deal to end the Middle East conflict sent crude prices lower.
Palantir Technologies gained 17.4% after raising its annual revenue forecast again, while chipmaker On Semiconductor added around 1% after forecasting quarterly revenue above expectations.
Caterpillar, seen
as a bellwether for the global industrial economy, gained 12% after raising its annual revenue growth forecast, benefiting from a buildout of AI data centers that has spurred demand for its power-generation and construction equipment.
Investors have been scrutinizing results from AI-linked companies this earnings season for signs that their billion-dollar investments are yielding returns. Strong results from AI leaders Microsoft and Amazon last week were a relief and have underpinned gains on Wall Street following a turbulent July.
"The AI earnings performance has been fantastic, but the big question that investors are asking themselves now is that if it's going to be sustainable," said Eric Parnell, chief market strategist at Great Valley Advisor Group.
"And if it's sustainable, we're going to have to start to separate the winners from the losers."
In geopolitics, crude prices fell over 2% after a Qatari official said efforts to secure a diplomatic resolution to the conflict were continuing, while U.S. Treasury Secretary Scott Bessent said a deal with Iran to reopen the Strait of Hormuz could come as soon as Tuesday or Wednesday.
At 9:35 a.m. ET, the Dow Jones Industrial Average rose 647.09 points, or 1.22%, to 53,825.50 to hit all-time highs. The Nasdaq Composite gained 304.36 points, or 1.16%, to 26,213.57.
The S&P 500 gained 44.06 points, or 0.58%, to 7,644.56, hitting its first record high since June.
Chip stocks were on a tear, with the Philadelphia Semiconductor index up around 4%. Shares of top hyperscalers, though, were mixed, with Alphabet and Microsoft down slightly early on.
Tech strength was offsetting broader losses on the benchmark S&P 500, as seven of the 11 S&P sectors were trading lower. Energy led losses with a 2.5% decline.
Overall, this earnings season has so far been better than historical standards. Of the 304 companies in the S&P 500 that have reported second-quarter earnings as of Friday, 85.2% have beaten estimates, versus the long-term average of 67.5%.
Elon Musk's SpaceX will release its first earnings report since its public debut after markets close. The company's shares were up 4.4%.
Shares of U.S. photonic firms Coherent and Lumentum added 14% and 7.8%, respectively, after Reuters reported the Trump administration is drafting a ban on U.S. imports of new models of Chinese data center components.
McDonald's inched 1.2% higher despite reporting disappointing results, while Pfizer dipped 1% after its quarterly results.
Later in the day, the focus will shift to the Labor Department's Job Openings and Labor Turnover Survey, scheduled at 10 a.m. ET, which is expected to show the economy created about 7.4 million jobs in June, lower than the 7.6 million in the month before.
Advancing issues outnumbered decliners by a 1.36-to-1 ratio on the NYSE and by a 2.04-to-1 ratio on the Nasdaq.
The S&P 500 posted 10 new 52-week highs and two new lows, while the Nasdaq Composite recorded 31 new highs and 18 new lows.
(Reporting by Johann M Cherian and Shashwat Chauhan in Bengaluru; Additional reporting by Niket Nishant; Editing by Devika Syamnath and Maju Samuel)
