The week was defined by profit-taking in AI related stocks while more defensive stocks held up better. Weakness among the mega-cap stocks (MGK -3.1%) weighed on the S&P 500, while the equal weighted index held up far better. The S&P 500, despite the struggles of the growth stocks, did manage to yet again hold its key support level at its 50-day moving average.
Amazon provided a bit of a boost early in the week for the mega-caps after announcing a $38 billion AWS compute deal with OpenAI. Under this new $38 billion agreement, which will have continued growth over the next seven years, OpenAI will be accessing AWS services for compute comprising hundreds of thousands of state-of-the-art NVIDIA GPUs, with the ability to expand to millions.
The positive sentiment created by Amazon did not last long. Investors had a negative reaction to Palantir’s (PLTR) earnings report which provided a reason for broader pullback in AI related stocks. The report itself was not indicative of a downturn in business activity, as the company surpassed earnings expectations and raised its guidance. Instead, the sell-off seemed tied to valuation concerns and some profit-taking after an impressive run this year. Even after today’s pullback, the stock still trades at an elevated multiple.
The Trump administration published the details of the trade agreement between the U.S. and China, which did not deliver any surprises. The overall tariff rate on Chinese imports was lowered 10%, and the scheduled 100% additional tariff increase will be postponed for a year.