Oct 6 (Reuters) - The benchmark S&P 500 and the tech-heavy Nasdaq rose on Monday, building on last week's gains, as AMD's chip-supply deal with OpenAI highlighted the extent of investor enthusiasm around AI and offset concerns around the federal government shutdown.
The equities rally has persisted despite cautious forecasts and warnings about elevated valuations, especially in tech.
AMD (AMD.O), became the latest catalyst after striking a deal with OpenAI that pushed the chip designer's shares to their highest in more than a year. The stock was last up 28.8% and the top performer on the benchmark index.
A recent spree in AI dealmaking has stoked some concern of a few heavyweights exchanging capital and resources in a closed ecosystem, but analysts still view the tech sector as a strong play.
"I do not think we're in a bubble. We do have above-average valuations but there is a real secular trend and profitability underlying them," said Brett Mitstifer, chief investment officer of private banking and wealth management at Flagstar Bank.
At 11:48 a.m. ET, the Dow Jones Industrial Average (.DJI), fell 80.71 points, or 0.17%, to 46,677.57, the S&P 500 (.SPX), gained 24.73 points, or 0.37%, to 6,740.52 and the Nasdaq Composite (.IXIC), gained 152.57 points, or 0.67%, to 22,933.08.
A data drought triggered by the government shutdown is also fanning expectations of an interest-rate cut, boosting valuations. A slew of alternative indicators last week pointed to tepid hiring, reinforcing bets that the Federal Reserve will cut rates by 25 bps at its next meeting.
Goldman Sachs expects the military pay date on October 15 to pressure lawmakers into ending their deadlock. If the shutdown stretches beyond that date, roughly 1.3 million uniformed military personnel would go unpaid, the brokerage said.
However, even if a deal is reached, the timeline for releasing delayed data remains uncertain.
Analysts say that makes the third-quarter earnings season kicking off next week the true test of the rally. By the end of October, 68% of companies representing 72% of market cap will have reported, according to Goldman.
Among stocks, some chip companies such as Marvell Technology (MRVL.O), and Micron Technology (MU.O), gained 2.9% and 3.5%, respectively. AI-linked firms such as Super Micro Computer (SMCI.O), Palantir Technologies (PLTR.O), and Oracle (ORCL.N), jumped 4.4%, 3.7% and 2.6%, respectively.
The S&P 500 tech (.SPLRCT), sector advanced 0.88%. Communication services (.SPLRCL), shares fell 0.24%, dragged by a 0.85% drop in Meta Platforms (META.O).
Declines in stocks such as Home Depot (HD.N), and McDonald's (MCD.N), weighed on the Dow.
Tesla (TSLA.O), gained 4% after it teased an October 7 event, with investors and analysts anticipating a more affordable EV model.
Regional bank Comerica (CMA.N), gained 15.5% after Fifth Third (FITB.O), said it will buy the company in an all-stock deal valued at $10.9 billion. Shares in Fifth Third were flat.
Crypto stocks climbed as bitcoin approached all-time highs. Coinbase Global (COIN.O), rose 1%, Riot Platforms (RIOT.O), jumped 4.9% while Strategy (MSTR.O), climbed 1.9%.
Advancing issues outnumbered decliners by a 1.26-to-1 ratio on the NYSE and by a 1.65-to-1 ratio on the Nasdaq.
The S&P 500 posted 39 new 52-week highs and seven new lows while the Nasdaq Composite recorded 157 new highs and 41 new lows.
Reporting by Niket Nishant and Sukriti Gupta in Bengaluru; Editing by Devika Syamnath
