U.S. stocks finished higher Friday, with the Dow up 0.93%, S&P 500 gaining 0.51%, Nasdaq up 0.48%, and Russell 2000 essentially flat with a 0.07% gain.
The S&P 500 and Nasdaq also finished the week higher, helped by continued strength in technology. Semiconductors were among Friday’s best performers, while Microsoft gained nearly 4% following new Copilot announcements.
The macro backdrop also improved somewhat. WTI crude fell 2.3%, posting its second consecutive weekly decline, while short-term Treasury yields fell about seven basis points.
Oil Falls as Diplomatic Hopes Grow
Energy prices provided one of the biggest sources of relief Friday.
WTI crude fell 2.3% as investors continued following negotiations aimed at reducing tensions between the U.S. and Iran and potentially reopening the Strait of Hormuz.
Reports suggested negotiations have moved into a more technical phase, with discussions centered on a possible accelerated plan to restore shipping through the strait in exchange for changes to U.S. restrictions on Iran. U.S. officials had not confirmed the reported progress, however.
After September’s dramatic oil surge, the recent decline matters well beyond energy markets.
Lower crude prices could eventually provide relief for gasoline, diesel, transportation costs and inflation more broadly. That, in turn, would make the Fed’s job somewhat easier.
But given the continued uncertainty surrounding negotiations and Middle Eastern supply, the recent decline in oil should still be viewed as relief rather than resolution.
AI Demand Keeps Expanding Beyond GPUs
The AI story continued evolving Friday. Akamai jumped after announcing an $11.6 billion agreement with Anthropic to provide distributed cloud infrastructure for its AI workloads, with options potentially taking the commitment as high as $20 billion.
Importantly, much of that infrastructure will rely on CPUs rather than the GPUs that have dominated the first stage of the AI boom. That fits with a theme we’ve been highlighting throughout the week.
As AI moves from training enormous models toward actually deploying millions of AI agents and applications, computing demand is becoming broader. Running those applications requires CPUs, memory, networking, cloud infrastructure and enormous amounts of power in addition to advanced GPUs.
Microsoft reinforced the adoption side of that story Friday, unveiling new Copilot capabilities including an “Autopilot” personal agent aimed at business users.
The AI investment cycle therefore appears to be entering a new phase: less exclusively about building the most powerful model and increasingly about putting AI to work at scale.
But Building All That Infrastructure Won’t Be Easy
The other side of the AI boom also remained visible. Additional reporting on Oracle’s massive New Mexico data-center project indicated that the company could remain responsible for significant costs despite delays involving power and permitting.
The situation has reportedly caused lenders and investors to take a harder look at the financing structures behind other large data-center projects.
That doesn’t undermine the demand story. Instead, it reinforces a distinction that may become increasingly important: strong demand doesn’t automatically guarantee attractive investment returns.
AI infrastructure requires enormous amounts of capital, power, land and financing. As projects become larger, investors will increasingly need to distinguish between companies benefiting from AI demand and companies taking significant financial risk to build the infrastructure supporting it.
Economic Data Still Point to Resilience
Friday’s economic data were also generally constructive. Headline durable-goods orders were essentially unchanged in August, better than expected. More importantly, core capital-goods orders jumped 1.6%, significantly ahead of expectations.
Those orders are often viewed as an indicator of future business investment, suggesting companies remain willing to spend despite higher interest rates.
Consumer sentiment remains much weaker. The final September University of Michigan reading came in at 48.1, while consumers continued to report elevated inflation expectations.
That leaves the economy in an unusual position: business activity and investment remain strong, while consumers feel considerably less optimistic.
Here’s Our Take
Friday offered some welcome relief after a week dominated by 5% Treasury yields, inflation concerns and volatile energy prices.
Oil moved lower. Short-term Treasury yields retreated. Stocks finished the week higher. And the underlying corporate backdrop remains remarkably strong, with third-quarter earnings growth currently expected to approach 30%.
But the most interesting development may be what’s happening inside the AI investment cycle.
The first phase was dominated by training increasingly powerful models and the GPUs required to build them.
The next phase increasingly looks like deployment - AI agents embedded in businesses, software and everyday applications. That potentially creates a much broader investment opportunity across CPUs, memory, networking, cloud infrastructure, data centers and power.
At the same time, Oracle’s data-center challenges provide an important reminder that enormous demand doesn’t eliminate execution or financing risk.
The macro environment remains the other constraint.
The Fed is still worried about inflation, Treasury yields remain historically high and geopolitical risks haven’t disappeared. But if oil continues falling and bond yields begin stabilizing, those pressures could become less dominant.
That would allow investors to focus more heavily on what remains the strongest part of the current backdrop: healthy corporate profits, resilient business investment and an AI spending cycle that continues to expand into new parts of the economy.
Next week should provide another important test, with Micron earnings, month- and quarter-end trading, ISM manufacturing and Friday’s jobs report all on the calendar.
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