Nasdaq Climbs Above 26,200 as ASML's Bullish AI Forecast and Cooling Inflation Data Lift Chip Stocks Higher

The Nasdaq Composite climbed 0.66%, or 171.99 points, to 26,278.99 on Wednesday, extending a two-day rally as an upbeat sales forecast from chipmaking equipment giant ASML and a softer-than-expected wholesale inflation reading reinforced investor optimism around artificial intelligence-related spending.

The tech-heavy index built on Tuesday's gain of 233.83 points, or 0.9%, which had lifted the Nasdaq to a close of 26,107.01. The Dow Jones Industrial Average and S&P 500 also advanced Wednesday, with the Dow rising roughly 0.4% and the S&P 500 gaining about 0.4%, as signs that the ongoing war in Iran has not proven as inflationary as some investors had feared helped support broader risk appetite.

ASML Sends Bullish Signal on AI Demand

Technology and semiconductor stocks led Wednesday's advance after Dutch chipmaking equipment maker ASML lifted its annual sales forecast above Wall Street expectations, citing continued strength in artificial intelligence-related demand. The company also announced plans to increase its production capacity for chipmaking equipment by 30%, a move that helped ease investor concerns about potential bottlenecks in the broader semiconductor supply chain.

The positive signal from ASML rippled across the AI-linked chip sector, lifting shares of AMD and Intel by roughly 2% each in early trading, even as volatility continued to affect memory producers more broadly.

Wholesale Inflation Cools for a Second Straight Day

Wednesday's gains followed a Producer Price Index reading showing both headline and core wholesale inflation rose less than expected in June, aligning with Tuesday's softer-than-expected Consumer Price Index report. That combination further reduced the perceived risk that the Federal Reserve might need to raise interest rates at its upcoming policy meeting, offering additional support to equity markets already buoyed by strong technology sector performance.

The consumer price data released Tuesday showed headline CPI falling 0.4% in June, down from a 0.5% decline in May, driven in large part by a 5.7% drop in energy prices, including a 9.7% decline in gasoline prices. On a year-over-year basis, headline CPI rose 3.5% in June, down from 4.2% in May. Core CPI, which excludes volatile food and energy costs, held flat for the month, bringing the annual core inflation rate down to 2.6% from 2.9% in May.

According to CME FedWatch data, traders were pricing in an 84.5% probability that the Federal Reserve would leave its benchmark interest rate unchanged at its July meeting, within a target range of 3.50% to 3.75%, following the cooling inflation figures.

Bank Earnings Add to Positive Momentum

Wednesday's trading also built on a strong showing from major U.S. banks, which kicked off second-quarter earnings season this week. Morgan Stanley shares rose roughly 1% Wednesday after posting optimistic results, joining JPMorgan Chase, Bank of America, Citigroup and Goldman Sachs, all of which had reported strong quarterly results earlier in the week, according to market commentary tracking the session.

IBM's Historic Rout Weighs on the Dow

Despite the broader market's positive tone, not every major company benefited from Wednesday's rally. International Business Machines shares fell sharply following disappointing preliminary second-quarter results, with the stock dropping less than an hour into trading in what was described as a historic decline, surpassing the severity of the company's 23% single-day drop during the 1987 Black Monday crash.

IBM's preliminary results showed revenue rising just 1% to $17.2 billion, with growth in the company's software segment offset by flat consulting revenue and a 7% decline in its infrastructure business. Non-GAAP earnings per share rose 5% to $2.93, falling short of the $3.01 consensus estimate among analysts. IBM Chief Executive Arvind Krishna acknowledged the disappointing results directly.

"This quarter we faltered," Krishna said.

Analysts Raise Price Targets Across AI Chip Names

Adding to Wednesday's positive sentiment within the technology sector, analysts at KeyBanc raised price targets across several major AI chip companies, including AMD, Arm Holdings, Marvell Technology, Micron Technology and Nvidia. The firm cited Asia-based supply-chain checks pointing toward sustained data-center demand, along with tight memory supply and stronger pricing trends for DRAM and NAND memory chips, as key factors supporting continued strength in the broader AI infrastructure investment theme.

Fed Chair Signals Continued Focus on Inflation

Federal Reserve Chair Kevin Warsh addressed the central bank's ongoing approach to managing inflation this week, emphasizing that the Fed remains committed to bringing elevated price pressures fully under control despite the recent run of cooler inflation data.

Warsh vowed to make elevated inflation "a thing of the past" and said the central bank remains committed to getting policy right, while also pointing to the broader artificial intelligence investment boom as a potential long-term tailwind for economic productivity and growth.

Sector Performance Diverges

Within the S&P 500, sector performance showed a notable split on Tuesday, a pattern that continued into Wednesday's session. Six of the index's 11 broad sectors ended Tuesday in positive territory, while five finished lower. The Information Technology, Communication Services and Energy sector funds rose 1.3%, 1.1% and 0.4%, respectively, while the Health Care sector fund fell 1.9%.

Market volatility eased alongside the positive sentiment, with the CBOE Volatility Index, often referred to as Wall Street's fear gauge, falling 3.9% to 16.50 by Tuesday's close.

Iran Conflict Remains a Wildcard

Despite Wednesday's gains, the ongoing conflict between the United States and Iran continues to pose a risk to market sentiment. Rising energy prices tied to further escalation in strikes between the two nations have partially offset the positive impact of cooling inflation data and strong technology sector performance, even as investors have so far concluded that the conflict's inflationary impact has been more contained than initially feared.

With Wall Street already navigating a busy stretch of second-quarter earnings reports and continuing to monitor developments in the Middle East, investors are likely to remain focused on additional corporate results and economic data in the days ahead. Additional major earnings reports are expected throughout the week, including from Taiwan Semiconductor Manufacturing Company, which is expected to offer further insight into the strength of global AI-related chip demand heading into the second half of 2026.