September 26, AI stocks rise again—'AI demand' does not disappear even with 5% interest rates

September 26: US stocks rebound, employment statistics and PCE are the focus next week

Conclusion for today: US stocks rebounded, led by AI and technology stocks, even as the 10-year Treasury yield rose to the 5% range. The S&P 500 rose 0.51%, the NASDAQ rose 0.48%, and the NY Dow rose 0.93%. Microsoft in particular rose 3.7%, with AI-related stocks supporting the market. While interest rates continue to rise, capital investment and demand for AI remain strong, and the current market is no longer following the simple movement of ‘rising interest rates = selling AI stocks.’
What I want to focus on most in this US stock market is that investment in AI-related companies is still continuing.

Microsoft announced new Copilot features, adding coding capabilities and always-on AI agents. Following this, the stock price rose 3.7%.
Furthermore, Qualcomm rose 4% and Dell rose 5%. Funds also flowed into semiconductors, servers, and data center-related areas to actually run AI.

Another interesting one is Akamai.
Akamai announced an $11.6 billion cloud service contract with AI company Anthropic, and its stock price rose. This contract also includes warrants that allow Anthropic to acquire up to 5% of Akamai.

This shows that investment in AI companies is not simply concentrated on GPU manufacturers. Funds are flowing into the entire infrastructure that supports AI, including companies developing AI models, cloud, data centers, and networks.

On the other hand, interest rates remain a major risk.
The US 10-year Treasury yield rose to 5.196%, the highest level in 19 years. Crude oil prices are also at a level exceeding $100.
The fact that the NASDAQ rose despite this suggests that in the current market, growth expectations for AI-related companies are absorbing the pressure on valuations caused by rising interest rates to some extent.

However, what I want to note here is that ‘index strength’ and ‘overall market strength’ are not the same thing.

The S&P 500 in September is almost flat, but 8 out of 11 sectors have fallen. Also, the equal-weighted S&P 500, which looks at the movement of average stocks rather than market capitalization weighting, fell about 4% in September.

In other words, while large-cap AI and technology stocks are supporting the index, weakness is also spreading within the market.

Next week, we cannot just look at AI stocks.
The biggest focus is the September employment statistics to be announced on October 2. According to economist forecasts compiled by Reuters, an increase of 100,000 jobs and an unemployment rate of 4.2% are expected.
Furthermore, the PCE price index will be announced on Wednesday. As an inflation indicator that the FRB emphasizes, it is important data that will influence future interest rate hike expectations.

Currently, the probability of an FRB interest rate hike in October has risen to a level exceeding 60% in the market.

In other words, next week, we need to look at three things simultaneously: is AI demand strong, will interest rates rise further, and will employment and inflation support the FRB’s interest rate hikes?
For Japanese stocks, the point will be whether funds continue to flow into semiconductor and AI-related stocks.

In particular, next week, I want to confirm whether the NASDAQ and semiconductor stocks can maintain relative strength even while US interest rates remain in the 5% range.
Will AI-related stocks absorb the rise in interest rates and continue to rise, or will profit-taking sales spread triggered by employment statistics and PCE?

Next week’s market seems to be this turning point.

📚Today’s Market English

AI-related capital expenditure
AI-related capital expenditure remained strong.
AI-related capital investment remained firm.

Market breadth
Market breadth remained weak despite gains in major indexes.
Market breadth remained weak while major indexes rose.

💡Today’s Insight

Looking at this week’s US stocks, it is clear that the AI market is supported not just by ‘expectations,’ but by actual capital investment and large-scale contracts between companies.
On the other hand, the 10-year Treasury yield has risen to the 5% range, and the environment for the entire stock market is by no means easy.

That is why what will become important from now on is not ‘whether AI stocks will rise,’ but ‘whether investment in AI will continue even amidst rising interest rates.’

Looking at the movements of companies like Microsoft, Qualcomm, Dell, and Akamai, AI investment is spreading beyond semiconductors to software, servers, the cloud, and networking.

Next week brings the jobs report and PCE. AI demand and interest rates.
This tug-of-war between the two will likely be important in considering the direction of the October market.

Reference

Reuters
“Wall Street ends higher as investors buy AI stocks; Microsoft rallies”

Reuters
“Wall St Week Ahead: Jobs report, inflation data to test US rate path, economic strength”

The Wall Street Journal
“Yields Subside, Stocks Breathe Easier”