Wall Street finished Wednesday modestly higher, with semiconductor stocks leading the move on the back of strong industry results and continued spending on artificial intelligence (AI) infrastructure. Beneath the gains, however, investors are asking harder questions about the scale of AI investment and whether the eventual returns will be enough to justify elevated valuations. The Federal Reserve kept interest rates on hold, and attention now shifts to US growth and inflation data, the European Central Bank decision and another busy day of company results.
Global market overview
Equity markets moved in different directions across regions, while central bank policy, bond yields and energy prices continued to shape investor sentiment.
US equities and the Federal Reserve
The S&P 500 and the Nasdaq Composite each rose 0.3%, while the Dow Jones Industrial Average added 0.2%. Chipmakers led the advance.
The Federal Reserve left its target range unchanged at 3.75% to 4.00%, in line with expectations, but kept a watchful tone on inflation. Two policymakers voted against the decision in favour of a 25 basis point rate rise, highlighting persistent concerns over price pressures.
In bond markets, the 10-year US Treasury yield stood at 5.02%, while the two-year yield eased to 4.70%. A resilient economy continues to underpin company earnings, but higher borrowing costs remain a drag on valuations. The central question for markets is whether growth and profits can hold up if interest rates stay higher for longer. The US dollar softened slightly after the Fed announcement.
European and Asian markets
European shares were largely muted, as gains in Germany and Italy were offset by declines in other markets. Deutsche Bank was supported by stronger results, while GSK and Santander dropped sharply. The euro held broadly steady ahead of the ECB announcement.
Asian markets lost ground overnight, led by South Korea’s KOSPI, which fell 3%. In China, the Shanghai Composite and the CSI 300 each fell 1.2%, and Hong Kong’s Hang Seng TECH index dropped 2%. Japan’s Nikkei and the Australian market posted small gains.
Commodities and geopolitical risk
Geopolitical tension continued to influence commodity prices. WTI crude oil climbed 1.6% to $101.48 per barrel on Wednesday, while Brent remained above $113 in the supplied market data, as markets weighed the risk of disruption to Middle Eastern energy supplies. Reported attacks in Yemen and rising tensions involving Saudi Arabia and Iran have increased uncertainty around the Strait of Hormuz and the Bab el Mandeb Strait.
The World Bank expects global commodity prices to rise 23% in 2026, with energy prices forecast to increase 32%. If those forecasts prove accurate, inflation pressures could persist for longer and make the outlook for monetary policy harder to read.
Fiscal pressures
Government finances also remain in focus. The UK’s latest Budget pairs support measures and additional spending with weaker projected growth, while Italy’s expansionary budget has added to concerns about public borrowing.
Taken together, the market backdrop combines resilient economic activity and strong earnings in selected sectors with elevated valuations, inflation risk and geopolitical uncertainty.
Corporate earnings and AI investment
Company results showed strong demand across the AI supply chain, alongside closer investor scrutiny of what that spending will ultimately deliver.
AI infrastructure demand remains strong
AI infrastructure was again the dominant theme in company results, with demand supporting semiconductor equipment, data centre power systems, cooling technology and cloud computing.
Vertiv grew third quarter revenue by 61% and lifted its full year guidance. GE Vernova reported a 96% rise in organic orders and a backlog of $197bn, and raised its forecasts, underlining strong demand for power generation and electrification equipment. KLA beat quarterly expectations, with revenue up 29% year on year to $4.14bn, and guided higher for the current quarter.
Microsoft reported earnings of $4.89 per share on revenue of $92.28bn, while Azure revenue grew 48% year on year. Capital expenditure came in below expectations, which offered some reassurance on the cost of AI investment. Amazon’s AWS capacity is reportedly largely committed through 2027, with significant customer commitments running into 2028. Oracle expects positive free cash flow in the second half of fiscal 2028, which helped ease concerns over how it will fund its AI infrastructure expansion.
Investors scrutinise AI spending
Alphabet’s results showed how closely investors are now examining AI spending and profitability. Third quarter revenue of $127.6bn fell short of expectations, and free cash flow turned negative at $9.1bn as the company continued to invest heavily. The shares fell around 10% in after hours trading.
ServiceNow also came under pressure after its fourth quarter revenue guidance missed expectations, even though revenue grew 20.5% year on year. Both reactions show that the market is increasingly focused on whether AI investment can be converted into sustainable revenue growth, margins and cash generation.
Semiconductor deals and results
Reports that Marvell Technology and Lumentum are in advanced talks over a possible acquisition highlighted the strategic value of optical technology in AI data centres. Lumentum shares rose almost 9% on the news, while Marvell fell 8.4%, reflecting concerns over the cost of a deal, valuation and execution risk.
Samsung Electronics posted record third quarter revenue and operating profit, driven by strong demand for AI memory, although net profit missed expectations. The results were published before the latest decline in Asian markets.
Earnings beyond technology
Chipotle reported comparable sales growth of 2.1%, ahead of expectations, and revenue rose 9.6% to $3.29bn. Adjusted earnings, however, missed estimates as higher labour, freight and beef costs weighed on profitability. FedEx beat expectations on adjusted earnings and raised its full year forecasts, helped by better pricing, higher volumes and cost reductions.
In financials, BNP Paribas grew third quarter net profit by 14%, while UBS reported higher profits and strong inflows into its wealth management business. Airbus kept its full year delivery target unchanged despite supply chain challenges.
Other corporate news
Apple launched its first touchscreen MacBook Pro, which features an OLED display and the new M5 Pro and M5 Max chips. Amazon announced further job cuts in its devices and services division, following earlier reductions in its retail business. SAP is increasingly turning to lower cost AI models where their performance is sufficient, and is targeting more than €2bn in efficiency gains from AI. UBS, meanwhile, stressed the value of diversifying beyond AI, pointing to opportunities in power and resources, healthcare and selected international markets.
What to watch today
Thursday brings key economic releases on both sides of the Atlantic, together with key corporate earnings.
US GDP and inflation data
US third quarter GDP and September inflation figures dominate the calendar. Growth is expected to accelerate to an annualised 3.2%, up from 2.2% in the previous quarter, supported by consumer spending and business investment. Core PCE inflation, the Federal Reserve’s preferred inflation gauge, is forecast at 3.1% year on year. Initial jobless claims are expected to rise to 199,000 from 194,000. The data should offer a clearer view of how resilient the US economy remains and where interest rates may head next.
ECB policy decision
The European Central Bank is expected to keep its deposit facility rate unchanged at 2.0%. President Christine Lagarde’s press conference will be watched closely for further guidance on the policy outlook.
Key company earnings
Amazon, Intel, Eli Lilly, Mastercard, Caterpillar, Merck, Linde and Shell are among the companies reporting. Investors will focus on cloud demand and AI spending at Amazon, semiconductor performance at Intel, payment volumes at Mastercard, Caterpillar’s view on industrial activity and Shell’s outlook for energy markets. Together, the economic data and company results should provide further evidence on consumer demand, the direction of inflation and interest rates, and how sustainable corporate investment and earnings growth are.
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