All three main equity indexes were lifted by general optimism about the AI revolution on Wednesday, with incoming data showing an actual return on investment for one of its major players. Whether that trend persists is the controlling question for markets, with more earnings and guidance from the new economy’s leaders on the immediate horizon.
By the closing bell, the tech-heavy Nasdaq Composite was up 1.1% at 26,702, the broad-based S&P 500 had added 0.6% to 7,757, and the blue-chip Dow Jones Industrial Average was higher by 0.7% at 52,856.
Price action in the bond market was relatively muted, with the 2-year Treasury yield up 2.3 basis points to 4.81%. Yields on the 10-year (+0.6, 5.123%) and the 30-year (-1.2 bps, 5.413%) Treasuries drifted mostly sideways.
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“The recent volatility in the AI trade may have rattled the market,” observes Morgan Stanley Wealth Management Portfolio Manager Daniel Skelly, “but it’s arguably a healthy development, especially given a backdrop of solid growth and strong earnings.”
Skelly acknowledges that concern about spending is “merited given the boom-bust nature of some previous US innovation episodes.” At the same time, he concludes, “The long-term AI capex cycle remains intact and should continue to favor large players with strong balance sheets.”
Why a SpaceX-Tesla merger is only a matter of time
SpaceX (SPCX, +7.8%) announced its presence on the earnings calendar with authority after the closing bell on Tuesday, including a big bottom-line beat driven by rapid growth for its Super Intelligence and Starlink segments.
But the bigger news might be what CEO Elon Musk said about the biggest potential M&A transaction in stock market history, a long-rumored tie-up between SpaceX and Tesla (TSLA, +3.4%).
According to Musk, the boards of both SpaceX and Tesla have formed special committees to talk about a merger between the two companies.
“I do think there’s a lot of merit to combining the companies,” Musk said during a conference call to discuss SpaceX results. “There’s a lot to be gained from cooperating on developing superintelligence software.”
Nobody knows anything, especially about the future. But even a limited data set indicates the probability the SPCX and TSLA boards see the situation the same way their CEO sees it is a lot closer to 100% than it is to 0%.
What that deal means for AT&T
AT&T (T, -6.5%) also reported expectations-beating top- and bottom-line results for its third quarter. Management raised its full-year earnings guidance, and AT&T is accelerating its stock buyback program, too.
Revenue was up 5.3% year over year to $32.3 billion, vs a FactSet-compiled consensus estimate of $31.7 billion. Earnings per share came in at 65 cents vs estimates of 60 cents. AT&T said 2026 EPS will be $2.40, up from a range of $2.25 to $2.35 offered in July.
“The accelerated growth we delivered this quarter shows our structural advantages to lead the next era of connectivity,” CEO John Stankey said in a statement. “We are accelerating the pace of our planned share repurchases this year to approximately $10 billion, reflecting our confidence in our market position.”
But the blue-chip dividend stock still fell sharply on Wednesday. AT&T reported 379,000 new postpaid subscribers, missing a consensus forecast for 379,300. That’s also down from 432,000 new adds in the second quarter.
Postpaid subscribers generate long-term recurring revenue. Deterioration here is an indicator of competitive pressures from existing market participants such as Verizon Communications (VZ, -2.2%) and T-Mobile US (TMUS, -2.5%).
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Despite what Stankey said about its structural advantages and its position in this emerging era of connectivity, markets are also pricing the potential impact on the prevailing market-share pie of new service providers such as SpaceX.
T (down 4.7% through October 20 vs -0.7% for the S&P 500), VZ (-2.3%) and TMUS (-7.9%) have all suffered since October 8, when SpaceX accelerated its plans to launch a consumer wireless telecom business with an $8 billion spectrum purchase that will allow Starlink to compete with the incumbents.
Tesla and fellow Magnificent 7 stock Meta Platforms (META, +0.5%) are reporting third-quarter financial and operating results after the closing bell. Independent tech analyst Luke Lango is particularly bullish on the latter.
“Meta heads into earnings as a frontier AI contender, not just an ad company, and the market hasn’t fully priced that shift. The core business is humming, and we expect revenue to clear the $63.3 billion consensus by $1 billion or more on growth north of 20%, a pace few mega caps can touch.”
According to Lango, Meta’s brand-new Muse is the real story after the AI agent “topped 10 million downloads in about six weeks, a launch pace only a dozen apps have ever hit.”
The analyst cites SpaceX’s “blowout” earnings as evidence that agents and the computing power to support them “are already making real money.” As Lango sees it, this totally reframes the capex debate. “When compute is this scarce and this valuable,” he writes, “a bigger spending plan isn’t recklessness, it’s a land grab.”
Lango is looking for Mark Zuckerberg’s outfit to post strong ad numbers and “hard” Muse metrics. “At roughly 20 times next year’s earnings,” the analyst concludes, “Meta is one of the cheapest ways to own the AI agent era.”