AI excitement drives tech stocks higher on Wall Street

NEW YORK (AP) Wall Street’s frenzy over artificial intelligence helped push the stock market higher on Thursday, even as concerns mount over political rancor in Washington.

The S&P 500 rebounded 0.9% after Chipmaker Nvidia gave a monster prediction for future sales as it benefits from the tech world’s rush to AI. That helped the Nasdaq composite jump 1.7%, while the Dow Jones Industrial Average slipped 35 points, or 0.1%.

Because it is one of Wall Street’s most valuable stocks, Nvidia’s 24.4% rise was the strongest force pushing up on the S&P 500. Its forecast of around $11 billion in revenue for the current quarter beat analysts’ expectations for less than $7.2 billion. Nvidia stock has already more than doubled this year and its total value is approaching $1 trillion.

Shares of other chipmakers also rose after Nvidia described a race by its customers to embed AI into every product, service and business process. Advanced Micro Devices gained 11.2%.

Some Big Tech stocks rallied, adding to recent gains fueled by AI enthusiasm. The field has become so hot that critics are warning of a possible bubble, while proponents say it could be the last revolution to reshape the global economy. Microsoft gained 3.8% and Google’s parent company Alphabet rose 2.1%.

They helped lift the indexes even as the majority of stocks fell due to concerns over the US government approaches a possible defect on his debt. Washington could run out of cash to pay its bills as early as June 1, unless Congress allows it to borrow more.

The widespread expectation on Wall Street was that Washington would reach a deal before it was too late, as it has repeatedly before, because failure would likely be dire for the economy. But bitter partisanship on Capitol Hill undermines faith and trust in government.

Fitch said late Wednesday that it may downgrade the US government’s AAA credit rating. He said he still expects a resolution before the US Treasury runs out of cash, but he sees the risk of error growing.

The impasse over the debt ceiling, the failure of US authorities to meaningfully address medium-term fiscal challenges that will lead to growing budget deficits and a growing debt burden signal downside risks for the solvency of the United States, said Fitch.

In 2011, Standard & Poors downgraded its AAA credit rating for the United States following a similar political wrangle over the debt ceiling.

Another concern hinges on exactly when the X deadline will arrive for the US Treasury to run out of cash.

While Isaac Boltansky, director of policy research at BTIG, said he sees an 11th-hour deal happening, Washington is still arguing over exactly when midnight strikes, which remains our main concern because time limits are the only viable forcing mechanism in town.

On the losing side of Wall Street was Dollar Tree, which fell 12%. The retailer reported weaker earnings than analysts expected for the latest quarter. Customers are shifting their spending to less profitable products, and they’re also facing worse-than-expected theft, like other retailers.

In total, the S&P 500 rose 36.04 points to 4,151.28. The Dow slipped 35.27 to 32,764.65 and the Nasdaq gained 213.93 to 12,698.09.

In the bond market, yields rallied after reports suggested the economy was doing better than expected.

One said fewer workers applied for unemployment benefits last week than expected. It’s a signal that the labor market remains remarkably strong, even as manufacturing and other sectors of the economy slow under the weight of much higher interest rates.

Another report estimates the US economy grew at an annual rate of 1.3% in the first three months of the year, stronger than the 1.1% previously thought. This report also suggested that inflation was a bit higher at the start of 2023 than previously thought.

The stronger-than-expected data helped ease investor fears of a coming recession. But it could also convince the Federal Reserve to raise interest rates again next month. Traders are divided on whether the Fed will pause in June after raising rates at a breakneck pace for more than a year.

Higher rates have helped inflation ease from its peak last summer, but they do so by slowing the broader economy and dragging the prices of stocks, bonds and other investments.

The two-year Treasury yield, which tends to track expectations for Fed action, jumped to 4.53% from 4.38% last Wednesday.

The 10-year yield fell from 3.74% to 3.81%. It helps set mortgage rates and other large loans.

Stock markets overseas were mostly weaker, but the declines were more subdued than in previous days.

Germany’s DAX lost 0.3% after data showed its economy contracted in the first three months of the year, the second consecutive quarter that has occurred.

Hong Kongs Hang Seng fell 1.9% amid concerns China’s economic recovery after the government eased pandemic restrictions is faltering. Shanghai shares fell 0.1%.

AP Business Writers Elaine Kurtenbach and Matt Ott contributed.