What’s Driving Stocks This Morning

OpenAI has become the new kingmaker on Wall Street. Announcing deals with the AI shop is virtually guaranteed to drive double-digit gains for the stock pairing with it. Design software firm Figma (FIG) is the latest beneficiary of OpenAI's halo, surging almost 17% on news that its software would be integrated into ChatGPT. 

It's the fifth straight day of gains for the AI-forward design platform that began after OpenAI's chief Sam Altman explained to the company's DevDay conference how the chatbot's users could use Figma to design to complete tasks. By directly naming the company, it sent FIG shares soaring. The stock is up 41% in the past week.
 

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Advanced Micro Devices (AMD) is still riding the wave of its partnership with OpenAI. Its stock rose another 11% yesterday and is 43% higher over the past five days after agreeing to sell its advanced Instinct chips to the AI company in exchange for an investment in AMD that could see OpenAI owning 10% of the chipmaker.

Artificial intelligence is the straw stirring the economy's drink. According to an analyst at Morgan Stanley, AI companies – mostly the Magnificent 7, but also some 34 data center companies in the AI "ecosystem" – account for 75% of the S&P 500's gains this year, 80% of the earnings growth, and 90% of all capex spending since ChatGPT launched in November 2022.

It wasn't said out of admiration, but as a warning. As a writer at the Atlantic put it, "This is how the AI bubble will pop." Because of the circular nature of many of these deals, where companies – primarily Nvidia (NVDA), but also AMD to a degree – are essentially providing a form of vendor financing for their sales growth. And with AMD's deal with OpenAI, Nvidia is actually financing in part, its competitor because the money Nvidia is giving to OpenAI is being used to buy AMD chips.

Although AMD CEO Lisa Su believes AI has unleashed a new "supercycle" of growth that will last at least a decade, these sort of tech bubbles have formed before and have burst with dramatic effect. 

Investors would do well to take note and act accordingly to protect themselves. It's no coincidence that gold is above $4,000 an ounce and continues to set new highs.

The Big Picture: AI is the engine moving the markets forward and OpenAI is increasingly the one driving the gravy train. Partnering with the company tends to result in immediate stock riches as shares soar, but all it takes is a simple mention of a company's name to begin feeding the fires. Yet as the train gathers steam, more analysts are becoming concerned it's all about to go off the rails
 

Stocks on the Move (Pre-Market)

• Nvidia (NVDA) $191.64 +1.3% - The chipmaker won approval for chip sales to the UAE, potentially expanding its international market access.
• Advanced Micro Devices (AMD) $238.70 +1.3%  The chipmaker continues to enjoy Wall Street support following its deal with OpenAI.
• UnitedHealth Group (UNH) $373.89 +1.1% - Numerous analysts boosted their price target on the biggest health insurer to the $400 range.
• Freeport McMoRan (FCX) $44.10 +3.0% - The gold miner received two new analyst upgrades with Citi rating it a buy with a price target of $48.
• Figma (FIG) $69.54 -2.2% - The software design stock is giving back a little of the big gains it made yesterday following its partnership with OpenAI.
• Plug Power (PLUG) $3.40 -7.0% - The hydrogen power stock continues the slide begun yesterday after diluting shareholders yet again with the exercise of warrants to purchase over 185 million shares of stock at $2 per share. An analyst also reiterated its Sell rating on PLUG stock.
   

Upgrades & Downgrades

Upgrades:

• Advanced Micro Devices (AMD) upgraded to Buy at DZ Bank, tgt $250
• Constellation Energy (CEG) upgraded to Buy at Seaport Research Partners, tgt $170
• Freeport-McMorRan (FCX) upgraded to Buy at Citigroup, tgt $48
• Northrup Grumman (NOC) upgraded to Buy at Deutsche Bank, tgt $700
• Southern Copper (SCCO) upgraded to Equal Weight at Morgan Stanley, $132

Downgrades:

• FedEx (FDX) downgraded to Neutral at JPMorgan, tgt $274
• Intel (INTC) downgraded to Reduce at HSBC Securities, tgt $24
• Kratos Defense & Security (KTOS) downgraded to Neutral at B. Riley Securities, tgt $105
• Shell (SHELL) downgraded to Peer Perform at Wolfe Research
• Teck Resources (TECK) downgraded to Hold at Cannacord Genuity
   

Today’s Bottom Line:

Although AI is top of mind at the moment, it's not the only thing happening. The markets paused their forward momentum yesterday with the Dow essentially flat and the S&P 500 rose a half-percent, even as it hit yet another new all-time high. 

The Nasdaq, though, did resume its upward trajectory, rising 1.5%, but this morning the markets are treading lightly in anticipation of Federal Reserve chairman Jerome Powell's speech today at 8:30 a.m.

The central bank remains concerned about inflation's direction, but seemingly is still leaning in favor of further interest rate cuts. However, more concrete evidence of which way the economy is heading has been delayed due to the government shutdown shutting off the flow of official data.

That leaves Powell's speech as one of the few actionable data points. Although another bank president has gone on record favoring further cuts, the size and frequency remain a question. Most analysts expect at least two more rate cuts this year, but a third is possible. The Fed meets again at the end of the month. Another quarter-point cut is expected.

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