US stocks jumped on Wednesday as investors hoped the AI tech rally would continue after Alibaba said it will spend more on AI. The tech-heavy Nasdaq Composite soared nearly 0.3%, the Dow Jones Industrial Average climbed almost 0.3%, and the S&P 500 increased about 0.2%.
Tech stocks were trying to recover after the big tech “Magnificent Seven” lost on Tuesday, breaking their winning streak. Alibaba stock jumped over 8% in early trading because the company said it would spend more than $50 billion on AI to keep up with global competition, as per the Reuters report.
AI stocks rise as investors watch Fed and inflation
Alibaba’s CEO said global AI investment is growing fast, reaching $4 trillion, so the company needed extra spending to stay competitive. Micron posted better-than-expected quarterly earnings, which was positive for AI-focused investors, but its stock fell on Wednesday even though it supplies chips for Nvidia’s AI systems.
Investors are debating if the US Federal Reserve will cut interest rates. Fed officials’ comments this week show disagreements because of signs of weakness in the labor market. Fed Chair Jerome Powell said on Tuesday that the central bank will move cautiously on further rate cuts, but did not rule them out. He also called stocks “fairly highly valued”.
Wall Street is waiting for the Fed’s favorite inflation report, the Personal Consumption Expenditures (PCE) index, on Friday. This report will show if inflation is low enough to allow two more rate cuts this year. Before the PCE report, investors are watching weekly mortgage applications and August home sales data on Wednesday to understand the housing market and overall economy, as per the report by Yahoo Finance.
Alibaba, SMIC, Baidu stocks up
Chinese tech and chipmaker stocks rose after Alibaba’s announcement. SMIC went up 5%, Hua Hong added nearly 4%, and Cambricon increased 1.7% in Shanghai and Hong Kong. Cathie Wood’s Ark Invest helped push Alibaba stock up by reopening two positions in the company and investing in other Chinese tech stocks like Baidu (+3%) and Pony AI (+2%).
Lithium Americas, defense stocks rise
Lithium Americas stock jumped about 70% before the market opened after Reuters reported that the Trump administration might take up to a 10% stake in the company. The Trump administration is trying to renegotiate a $2.26 billion Department of Energy loan for Lithium Americas’ Thacker Pass lithium project, which it is doing with General Motors. This project is expected to be the largest lithium source in the Western Hemisphere in 2028, as stated by the Reuters report.
Lithium Americas confirmed discussions with the DOE and GM about the Thacker Pass project and said it continues working for a mutually agreeable solution. European defense stocks rose after Trump reversed his stance on the Russia-Ukraine war. He said Ukraine could get all its territory back and called Russia a “paper tiger”.
Germany’s Rheinmetall went up 2%, Hensoldt and Sweden’s SAAB gained over 4%, and UK’s BAE Systems rose about 1%, even as most major European indexes were down. Trump also suggested that NATO countries could shoot down Russian planes in their airspace, but said the US response would depend on the circumstances, as per the Reuters report.
FAQs
Q1. Why did US stocks go up on Wednesday?
US stocks rose because Alibaba announced it will spend more than $50 billion on AI, boosting tech investor confidence.
Q2. What is the Fed watching before deciding on interest rate cuts?
The Fed is watching the PCE inflation report, weekly mortgage applications, and August home sales to see if the economy allows rate cuts.