Aug 4 (Reuters) - The S&P 500 and the Dow hit record highs on Tuesday after strong forecasts from Caterpillar and Palantir reassured investors about AI-driven demand, while hopes for an imminent deal to end the Middle East conflict sent crude prices lower.
Palantir Technologies (PLTR.O), soared 26% after raising its annual revenue forecast again, while Caterpillar (CAT.N), seen as a bellwether for the global industrial economy, gained 5.8% after raising its annual revenue growth forecast, benefiting from a buildout of AI data centers that has spurred demand for its power-generation and construction equipment.
Investors have been scrutinizing results from AI-linked companies this earnings season for signs that their billion-dollar investments are yielding returns. Strong results from AI leaders Microsoft (MSFT.O), and Amazon (AMZN.O), last week were a relief and have underpinned gains on Wall Street following a turbulent July.
"The AI earnings performance has been fantastic, but the big question that investors are asking themselves now is that if it's going to be sustainable," said Eric Parnell, chief market strategist at Great Valley Advisor Group.
"And if it's sustainable, we're going to have to start to separate the winners from the losers."
Chip stocks were on a tear, with the Philadelphia Semiconductor index (.SOX), up around 5.8%. Shares of top hyperscalers, though, were mixed, with Amazon (AMZN.O), dropping 2% as it cooled from the recent rally, while Microsoft (MSFT.O), gained 2%.
The S&P 500 tech sector added 3.5% and was offsetting broader losses on the benchmark index, as seven of the 11 sectors were trading lower.
In geopolitics, crude prices fell about 4% after a Qatari official said efforts to secure a diplomatic resolution to the conflict were continuing, while U.S. Treasury Secretary Scott Bessent said a deal with Iran to reopen the Strait of Hormuz could come as soon as Tuesday or Wednesday.
At 11:37 a.m. ET, the Dow Jones Industrial Average (.DJI), rose 768.56 points, or 1.44%, to 53,946.83 and the Nasdaq Composite (.IXIC), gained 478.21 points, or 1.85%, to 26,392.10.
The S&P 500 (.SPX), gained 98.24 points, or 1.29%, to 7,698.74, hitting its first record high since June.
Overall, this earnings season has so far been better than historical standards. Of the 304 companies in the S&P 500 that have reported second-quarter earnings as of Friday, 85.2% have beaten estimates, versus the long-term average of 67.5%.
Elon Musk's SpaceX (SPCX.O), will release its first earnings report since its public debut after markets close. The company's shares were up 4%.
Shares of U.S. photonic firms Coherent (COHR.N), and Lumentum (LITE.O), added 14% and 10%, respectively, after Reuters reported the Trump administration is drafting a ban on U.S. imports of new models of Chinese data center components.
McDonald's (MCD.N), inched 1.6% higher despite reporting disappointing results, while Pfizer (PFE.N), gained 1.1% after reporting upbeat quarterly results.
On the data front, job openings dropped in June, weighed down by a sharp decline in the healthcare and social assistance sector, but a rise in hiring and low layoffs suggested the labor market remained stable.
Traders priced in a 58.6% chance that the Federal Reserve will hike interest rates in September, the CME Group's FedWatch Tool showed.
Advancing issues outnumbered decliners by a 2.11-to-1 ratio on the NYSE and by a 2.57-to-1 ratio on the Nasdaq.
The S&P 500 posted 18 new 52-week highs and three new lows, while the Nasdaq Composite recorded 92 new highs and 38 new lows.
Reporting by Johann M Cherian and Shashwat Chauhan in Bengaluru; Additional reporting by Niket Nishant; Editing by Devika Syamnath and Maju Samuel
