U.S. markets rotate within AI trade as bank earnings start strong

Traders Union
All News
Financial News
AI rotation, strong bank earnings

Highlights

IBM falls 25% in one day and over 26% for the week after pre-announcing weaker Q2 results driven by shifting customer budgets toward cybersecurity, hardware, and AI.
CrowdStrike, Palo Alto Networks, Dell, and Micron rally as investor capital rotates from traditional software to cybersecurity and hardware, while Salesforce and ServiceNow decline.
Goldman Sachs outperforms in Q2 earnings and Wells Fargo beats expectations as June inflation data comes in cooler, but the S&P 500 drops 1.6%, Nasdaq nearly 3%, and oil surges 15.5% amid geopolitical risks.

AI rotation reshapes tech leadership

As reported by CNBC, investors spend the week reassessing where artificial intelligence-related returns are most likely to emerge, favoring large platform companies over parts of the chip supply chain even as the broader AI theme remains intact.

That rotation intensifies after IBM pre-announces disappointing second-quarter results, triggering a 25% one-day drop in its stock and a weekly decline of more than 26%. Chief Executive Arvind Krishna says customers are redirecting technology budgets toward cybersecurity, hardware and AI tokens, leaving less room for traditional software and consulting projects and delaying several large deals.

The market rewards some of the perceived winners from that spending shift. CrowdStrike and Palo Alto Networks rally sharply, while Dell and Micron also gain as investors bet that AI deployment is creating added demand for cyber protection and supporting selected hardware names. By contrast, Salesforce and ServiceNow come under pressure as more conventional software spending loses priority.

Selling pressure also hits AI infrastructure names after SK Hynix's U.S. debut, with losses spreading to Sandisk, Intel and AMD. Even upbeat signals from ASML and Taiwan Semiconductor fail to reverse the move, as investors focus instead on the rising cost of the AI buildout, valuation concerns across semiconductor shares and fresh competitive pressure after Moonshot AI unveils a new model it says narrows the gap with leading U.S. systems.

Some of that capital shifts back toward hyperscalers. Alphabet briefly benefits from Warren Buffett's comments on Berkshire Hathaway's investment before giving back ground after Bloomberg reports delays in Google's latest Gemini model, while Apple rises to record levels after approval to bring Apple Intelligence to China using Alibaba's AI models for devices sold there.

Bank earnings and macro risks steer sentiment

Beneath the technology rotation, second-quarter earnings season opens on a firm note for major U.S. banks. Goldman Sachs posts standout results driven by investment banking and trading, while Wells Fargo exceeds earnings and revenue expectations as management continues to push the bank beyond its traditional lending base.

The earnings momentum arrives as June consumer and producer price reports come in cooler than expected, supporting hopes that inflation continues to ease. At the same time, traders remain alert to the risk that renewed conflict between the U.S. and Iran could disrupt the Strait of Hormuz and feed back into prices through higher energy costs.

Oil prices jump sharply during the week, with West Texas Intermediate rising 15.5% to above $82 a barrel and Brent climbing nearly 16% to just above $88, though both benchmarks finish below their war-driven peaks as hopes for diplomacy persist. By the end of the week, the S&P 500 is down nearly 1.6% and the Nasdaq loses almost 3%, reflecting how AI positioning, earnings and geopolitical risks are all pulling on market direction at once.

Looking ahead, investors are watching Capital One's upcoming results for signs that the company can post its first earnings beat in three quarters and begin to show benefits from its Discover acquisition. The broader market focus remains on whether AI spending keeps rotating across subsectors or resumes lifting the full technology complex.

In our earlier article on extreme U.S. equity valuations, we highlighted that indicators such as the S&P 500’s CAPE ratio, the excess CAPE yield, and the Buffett indicator were nearing levels historically associated with weak returns and sharp corrections. We also noted that AI-fueled optimism and heavy concentration in mega-cap tech can keep markets elevated, even as fiscal deficits, rising debt, and geopolitical tensions increase overall fragility.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.