AMD signs multi-billion-dollar AI deal with OpenAI

General market commentary

Equity markets were mixed on Monday, with the S&P 500 and Nasdaq closing higher while the Dow Jones edged lower. The technology-heavy Nasdaq gained around 0.7%, supported by a rally in chipmakers after AMD announced a major partnership with OpenAI to supply AI chips, an agreement that could generate significant annual revenue and allow OpenAI to take a stake of up to 10% in AMD. Shares of AMD surged nearly 24% on the news, helping lift broader technology equities. Meanwhile, Tesla climbed about 5.5% after teasing an upcoming event, while Starbucks fell 5% following a broker downgrade. Government bond yields inched up slightly, with the 10-year Treasury yield rising to 4.16%, remaining within its recent range.

Despite the ongoing U.S. government shutdown entering its second week, investor sentiment has stayed resilient, with the S&P 500 and Nasdaq achieving fresh record highs. The recent momentum has been underpinned by two main drivers: secular growth from AI innovation and cyclical support from expectations of lower interest rates. Semiconductor and technology shares continue to lead gains as investment in AI infrastructure accelerates, while lower rate expectations have boosted cyclical sectors such as consumer discretionary and smaller cap equities. Although the shutdown could temporarily weigh on growth, markets appear focused on the potential for a rebound once government funding resumes.

Latest market and economic update

Asian equities advanced on Tuesday, led by gains in technology shares following strong performance from U.S. peers and optimism around artificial intelligence. Japanese markets hit record highs as the election of a fiscally dovish prime ministerial candidate eased rate hike concerns. Trading volumes were subdued due to holidays in China, Hong Kong, and South Korea.

US equity futures dipped overnight as the government shutdown entered its seventh day, following the failure of Senate funding proposals. Despite strong gains on Monday, including record highs for the S&P 500 and Nasdaq, futures pointed to a softer start, reflecting caution amid political uncertainty and ongoing investor focus on Federal Reserve rate cut expectations.

European equities closed mostly lower on Monday as renewed political turmoil in France raised concerns over Eurozone fiscal stability. The Eurozone’s STOXX 50 fell 0.3%, while the pan-European STOXX 600 was flat. French banks, insurers, and luxury firms declined sharply after Prime Minister Lecornu’s resignation, while AI-linked shares such as ASML and Adyen gained around 2%.

The U.S. dollar strengthened this morning, with the dollar index rising to around 98.2 as the government shutdown extended into its seventh day. The euro weakened, pushing the EUR/USD pair down to 1.1702, amid political uncertainty in France. The dollar also gained support from expectations of upcoming Federal Reserve rate cuts.

Oil prices were steady in Asia this morning, with Brent at $65.48 and WTI at $61.69 a barrel. Gains from a smaller-than-expected OPEC+ output rise were tempered by concerns over weakening global demand and potential oversupply. Geopolitical tensions, including the Russia-Ukraine conflict and refinery disruptions, provided some support amid worries of a future supply glut.

President Donald Trump announced that all medium and heavy-duty trucks imported into the United States will face a 25% tariff from 1 November. The move, justified on national security grounds, aims to protect domestic manufacturers. The tariffs will apply to a wide range of large vehicles, including lorries, buses, and utility trucks.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Advanced Micro Devices announced a multi-year partnership to supply AI chips to OpenAI, a deal expected to generate tens of billions in annual revenue. The agreement includes an option for OpenAI to acquire up to 10% of AMD’s equity, with large-scale GPU deployment planned from 2026. Barclays described the deal as mutually beneficial and raised AMD’s target price to $300.

Tesla plans to launch a more affordable version of its Model Y electric vehicle on Tuesday, featuring fewer premium features to offset the loss of the US federal tax credit. The announcement, teased on social media, boosted Tesla shares by 5.4% on Monday. Production of the cheaper model began in June but was deliberately delayed.

The U.S. Supreme Court refused to pause key parts of a judge’s order requiring Google to allow rival app stores and external payment links in its Play store, following Epic Games’ antitrust lawsuit. Google plans to continue its appeal, arguing the changes pose security, reputational, and competitive risks, while Epic says they will boost consumer choice and competition.

The U.S. Supreme Court declined to hear SAP’s appeal in a lawsuit by Teradata, which alleges the German software giant violated U.S. antitrust law by tying sales of business-planning software to its database. The case, revived by the 9th Circuit, is set for trial in April 2026, with SAP denying wrongdoing and supported by Meta and Microsoft.

Applovin shares fell 14% on Monday after reports of an SEC investigation into its data-collection practices. The probe focuses on potential breaches of partner agreements for targeted advertising, raising regulatory concerns and investor worries about possible legal challenges in the mobile advertising and app monetisation sector.

Talks to form a European satellite manufacturer with Airbus, Thales, and Leonardo have stalled over workshare disputes, La Tribune reports. Thales and Leonardo, owners of Thales Alenia Space, have requested more time. The venture, aimed at competing with SpaceX, would represent a major consolidation in Europe’s space industry.

Yardeni Research raised its year-end S&P 500 target to 7,000, citing U.S. economic resilience and improved market sentiment after trade tensions eased. The firm noted a “slow-motion meltup” aided by Fed rate cuts, projected stronger Q3 earnings, and highlighted elevated forward P/E ratios. Meltup odds rose to 30%, while correction risk remains at 20%.

J.P. Morgan upgraded euro zone equities to “overweight,” citing easing inflation, ECB support, cheaper valuations, and rising fiscal spending. German stimulus, a shift from Japan, and projected 14.3% earnings growth in 2026 support renewed investor optimism, with France and underperforming banks seen as attractive investment opportunities for next year.

Goldman Sachs raised Nvidia’s 12-month target to $210, maintaining a Buy rating. Strategic AI investments, particularly with OpenAI, reinforce Nvidia’s CUDA ecosystem and signal confidence in long-term AI growth. Some “circular” revenue from equity deals could be dilutive, but the bank sees strong earnings potential and a solid growth runway.

New Street Research downgraded ASML to Neutral, citing limited upside after a strong rally amid AI spending expectations. While AI-related capex is set to triple by 2030, growth will peak by 2026. Valuations for major semiconductor equipment firms are elevated, and near-term earnings upgrades appear constrained, making the sector’s AI-led rally potentially risky.

Morgan Stanley upgraded Micron Technology to Overweight, citing strong DRAM price gains and rising AI-driven demand for high-bandwidth memory. Tight supply could drive repeated earnings upgrades, with DDR5 and HBM margins holding up. The bank raised its price target to $220, highlighting potential earnings of $5 per share if memory prices rise around 15%.

Seaport analysts upgraded Netflix to Buy from Neutral, raising its price target to $1,385 ahead of third-quarter earnings on 21 October. The firm highlighted Netflix’s market share gains, strong content engagement, and potential for increased advertising revenue. Netflix has outperformed the Nasdaq in 2025, with expected Q3 EPS of $6.96 on $11.52 billion revenue.

Wells Fargo resumed coverage of Walt Disney with an Overweight rating, highlighting the Experiences segment, cruise expansion, and ESPN streaming growth as key drivers. The bank sees Disney’s valuation as undemanding and expects operational execution and succession clarity to support earnings growth and act as catalysts for a rerating.

Morgan Stanley views Baidu’s valuation as stretched after a recent rally but maintains an Equal-Weight rating, raising its price target to $140 and introducing a $220 sum-of-the-parts valuation. Analysts expect core ad revenue to decline, while AI cloud, chips, and autonomous driving support growth, with cloud revenue projected to rise 32% in FY25.

Abercrombie & Fitch was downgraded by JPMorgan to neutral from overweight, with its price target cut to $103. The downgrade reflects below-plan revenue at the Abercrombie brand and profit concerns, though Hollister showed stronger performance. The move comes as retailers brace for the critical holiday shopping season amid economic uncertainty.

Brokerages are largely positive on Klarna as it begins U.S. trading, citing its leadership in BNPL and strong European franchise. Rising costs may pressure near-term profitability, though margins are expected to recover by 2026. Analysts highlight long-term growth potential in the U.S. and Europe, with the shares trading at a discount to rival Affirm.

Goldman Sachs raised its December 2026 gold price forecast to $4,900 per ounce from $4,300, citing strong ETF inflows and likely central bank purchases. Spot gold traded around $3,960, up 51% this year. Continued demand from central banks, retail investors, and expectations of lower U.S. interest rates are supporting further price gains.

Upcoming data and events

Today’s economic calendar includes Germany’s August Factory Orders, France’s August Trade and Current Account Balances, and the U.S. August Trade Balance, offering insights into trade flows and potential impacts on economic growth and currency movements.