Dow opens nearly 700 points higher as Palantir, Caterpillar fuel AI rally

US stocks opened higher on Tuesday as strong earnings from Palantir Technologies and Caterpillar reinforced investor confidence in artificial intelligence-driven spending, while easing oil prices on hopes of a diplomatic breakthrough in the Middle East supported broader market sentiment.

The Dow Jones Industrial Average rose about 694 points, or 1.31%. The S&P 500 gained 0.57%, while the Nasdaq Composite climbed 1.05%.

Oil prices also retreated after Treasury Secretary Scott Bessent said talks with Iran were ongoing and that an agreement to reopen the Strait of Hormuz could come as soon as Tuesday or Wednesday.

West Texas Intermediate crude fell about 4% to around $76 per barrel, while Brent crude declined about 4% to roughly $80 per barrel.

Palantir, Caterpillar earnings boost market sentiment

Palantir Technologies surged more than 20% in trading after raising its full-year revenue forecast following stronger-than-expected second-quarter results.

CEO Alex Karp described the quarter as "otherworldly," with commercial revenue jumping 149% year over year to $764 million, driven by growing demand for sovereign AI.

Caterpillar also rallied about 10% in trading after reporting better-than-expected second-quarter earnings and raising its annual revenue growth guidance.

The industrial equipment maker cited strong demand for its machinery, supported by continued investment in AI data centers, which has increased demand for power-generation and construction equipment.

The company also said full-year tariff costs are expected to come in at the lower end of its previous guidance.

The results added to growing optimism surrounding AI-related spending after strong earnings from Microsoft and Amazon last week helped stabilize market sentiment following a volatile July.

AI-linked stocks extend gains

The positive earnings reports lifted several technology and semiconductor stocks.

Micron Technology gained about 5% in trading, while Marvell Technology rose roughly 12%.

Nvidia also advanced 2% as investors continued to favor companies exposed to AI infrastructure spending.

Shares of optical networking companies Coherent and Lumentum climbed around 13% and 5% respectively after reports that the Trump administration is drafting a ban on US imports of new models of Chinese data center components.

Elsewhere, Snap rose 10% after reporting second-quarter revenue above Wall Street expectations, helped by stronger advertising spending during the FIFA World Cup and increased campaign activity from large North American advertisers.

SpaceX shares also edged 4% higher ahead of the company's first earnings report since its public market debut, scheduled after Tuesday's closing bell.

Investors await key economic data

Attention later in the session will turn to a series of US economic reports that could shape expectations for monetary policy.

The Labor Department's Job Openings and Labor Turnover Survey is expected to show approximately 7.4 million job openings in June, down from 7.6 million in May.

Investors will also monitor June factory orders, international trade data, and comments from Kansas City Federal Reserve President Jeffrey Schmid for additional insight into the health of the US economy.

The data come as markets continue to assess the Federal Reserve's next move on interest rates alongside developments in the Middle East.

According to the CME FedWatch Tool, traders currently see a 63.4% probability that the central bank will raise interest rates by at least 25 basis points at its next meeting.