Dow falls as AI optimism lifts tech stocks, oil prices climb

US stocks opened mostly in the red on Monday as investors weighed renewed optimism around artificial intelligence against higher oil prices and continued tensions in the Middle East.

Expectations for fewer Federal Reserve rate hikes also supported technology stocks.

The Dow Jones Industrial Average fell 167 points or 0.3%. The S&P 500 fell 0.12% while the Nasdaq Composite was slightly in the green by 0.01%.

The S&P 500 reached a record high last week after softer inflation data and a surprise decline in July retail sales reduced expectations for a September rate increase.

AI optimism lifts chip stocks

Technology shares were among the stronger performers in trading as investors responded to reports of strong revenue growth at Anthropic.

Reuters reported that the AI company, which is preparing for an initial public offering, expects revenue of roughly $190 billion to $200 billion in 2028, according to people familiar with its financials.

Bloomberg also reported that Anthropic's second-quarter revenue exceeded $11.5 billion.

The reports helped support shares of AI-related companies.

Micron Technology rose more than 4%. Amazon fell, while Apple gained slightly.

Nvidia is scheduled to report its results next week, with investors expected to look for evidence that demand for AI infrastructure remains strong.

The company's shares also edged higher after a report that it had scaled back plans to support a proposed OpenAI data center project in Ohio.

The recent strength in technology stocks comes after concerns about the returns from massive AI investments had weighed on the sector.

Strong quarterly results and resilient demand forecasts have since helped restore some confidence in the trade.

Lower rate-hike odds support equities

Recent economic data has also improved the outlook for growth stocks.

A batch of softer inflation data, combined with an unexpected decline in July retail sales, has reduced expectations for a Federal Reserve rate increase in September.

CME FedWatch data showed traders pricing in about a 31% probability of a 25-basis-point hike next month, down sharply from the near-even odds of a hike and a hold seen a week earlier.

The reduced expectations for higher rates have helped support technology shares, which are particularly sensitive to interest-rate expectations.

Investors will continue to monitor economic data as Fed Chair Kevin Warsh has not provided forward guidance on the next policy decision.

The Federal Reserve is also scheduled to release its latest meeting minutes on Wednesday.

The earnings season is nearing its conclusion, with 453 S&P 500 companies having reported results. About 84.8% have exceeded analysts' earnings estimates, according to LSEG IBES data.

Middle East tensions keep oil prices elevated

Geopolitical risks remained a counterweight to the positive sentiment surrounding AI and interest rates.

Oil prices rose after an Iranian official warned that tensions in the Strait of Hormuz and the broader region could increase if diplomacy with the US fails.

West Texas Intermediate futures climbed nearly 1% to around $83 a barrel, while Brent crude gained about 1% to roughly $89.

Higher oil prices have kept inflation risks in focus, particularly as investors assess the Federal Reserve's next policy move.