June 1 (Reuters) - Wall Street's main indexes were on track to hit record highs at Monday's open, driven by gains in Nvidia and Microsoft following their latest AI initiatives as investors looked past lingering uncertainty surrounding Middle East tensions.
Nvidia (NVDA.O), rose 2.3% in premarket trading after unveiling a new chip that puts AI capabilities directly into laptops and desktop computers.
The chip is the result of a three-year partnership with Microsoft (MSFT.O), to "reinvent the PC" for the AI era, Nvidia CEO Jensen Huang said. Microsoft shares added 3.3%.
The reaction in semiconductor stocks was mixed. Qualcomm (QCOM.O), tumbled 8.9%, while PC chipmakers AMD (AMD.O), and Intel fell 5.5% and 3.7%, respectively. Micron (MU.O), rose 5.5% to $1,022, topping the $1,000 mark for the first time. Its shares have soared nearly 90% in May.
"Nvidia might expand the market, but most of its gains will come at the expense of the incumbents," said Brian Jacobsen, chief economic strategist at Annex Wealth Management.
Memory makers such as Micron stood to benefit because their chips complement the processors that go into new computers, and an AI-driven refresh cycle could lift the premium end of the PC market, he said.
The mood was broadly somber and oil prices climbed after the latest attacks between the U.S. and Iran raised concerns over efforts to negotiate an end to the three-month-old conflict.
Wall Street's main indexes closed May at record highs, buoyed by hopes of an eventual end to the war and blowout first-quarter earnings. Optimism around AI has helped boost U.S. equities, but concerns over the economic impact from the hostilities remain.
Investors will turn to Friday's jobs report ahead of Kevin Warsh's debut policy meeting as chairman of the U.S. Federal Reserve this month, against the backdrop of rising inflation fears linked to the Iran war that could upend the stock market rally.
"Passing the baton from one chair to the next isn't always a smooth process. If the Strait of Hormuz doesn't more fully open before the next Fed meeting, it's almost certain that the Fed's policy statement will become more hawkish," Jacobsen said.
Traders have priced in a near 70% chance of a quarter-point rate hike before the end of the year.
At 08:11 a.m., Dow E-minis rose 164 points, or 0.32%, S&P 500 E-minis gained 15 points, or 0.2%, and Nasdaq 100 E-minis added 41.25 points, or 0.14%.
Software stocks also staged a rebound from the heavy selling earlier this year on AI disruption fears. ServiceNow (NOW.N), and IBM (IBM.N), rose about 9.5% each.
Cadence Design Systems (CDNS.O), added 7.1% after launching an Nvidia-powered AI agent for chip design.
Focus will now shift to Broadcom (AVGO.O), earnings on Wednesday following a strong results forecast last week from AI-server maker Dell (DELL.N). Broadcom is the second-largest U.S. chipmaker by market value after Nvidia.
Comments from a slew of central bank officials and a Beige Book report this week will also be watched before Saturday, when the Fed enters its pre-meeting blackout period.
In other company news, Taylor Morrison Home Corp (TMHC.N), jumped 22.1% after Berkshire Hathaway (BRKa.N), agreed to buy the homebuilder for $6.8 billion in cash.
Reporting by Medha Singh and Twesha Dikshit in Bengaluru; Editing by Shinjini Ganguli and Pooja Desai
