Dow jumps as AI stocks slide and earnings lift blue chips

The Dow jumps AI stocks split showed up clearly Tuesday: blue-chip industrial and consumer names pushed the Dow Jones Industrial Average higher, while several high-flying AI-linked hardware stocks dragged on the Nasdaq. For everyday investors, the move was a reminder that the market can rotate quickly when one popular trade starts to lose momentum.

CNBC Investing Club with Jim Cramer said the Dow was up more than 500 points, or 1.1%, in afternoon trading, helped by upbeat earnings from companies less tied to data centers. The S&P 500 rose about 0.25%, while the tech-heavy Nasdaq Composite was on pace for its fifth consecutive losing session.

Oil prices also fell meaningfully for a second day, CNBC Investing Club said, which helped pull interest rates lower. Lower rates can support stocks because they reduce the return investors can earn from safer assets and can lower borrowing costs for companies.

Why did the Dow jump while AI stocks fell?

The Dow benefited from strong results at several established companies. Coca-Cola and Sherwin-Williams, both Dow members, rose sharply after reporting revenue and profit that topped analyst expectations, according to CNBC Investing Club. Boeing, another Dow component and a holding in Jim Cramer’s Charitable Trust, also gained after second-quarter results that included stronger-than-expected free cash flow.

Free cash flow is the cash a company has left after covering operating costs and capital spending. Investors often watch it closely because it can support debt reduction, buybacks, dividends or future investment.

The pressure was concentrated in AI-linked hardware names. CNBC Investing Club said Sandisk, Dell, Micron, Western Digital, Applied Materials and AMD fell between 7% and 15%. Corning, also a club holding, dropped roughly 15% even after reporting earnings that topped analyst estimates.

AI hardware stocks are companies tied to chips, servers, storage and equipment used to build artificial-intelligence infrastructure. The group has been one of the market’s stronger areas this year, but CNBC Investing Club said Tuesday’s declines showed the risk that comes when fast-rising stocks lose momentum.

Software stocks moved in the other direction. The iShares Expanded Tech-Software Sector ETF was headed for a third straight gain, while the VanEck Semiconductor ETF was on track for a fourth consecutive decline, according to CNBC Investing Club.

Dover buys Cloeren in a small M&A deal

Dover announced Tuesday that it acquired privately held Cloeren Incorporated for an undisclosed amount. CNBC Investing Club described Cloeren as a global producer of high-performance, custom-designed machines used to make plastic products.

M&A means mergers and acquisitions, or companies buying, combining with or selling businesses. CNBC Investing Club called the Cloeren purchase a typical Dover deal because it adds a niche business to Dover’s existing portfolio, but said the acquisition did not change its view of the stock.

The club said it has been waiting for Dover management to pursue larger, accretive acquisitions. Accretive deals are transactions expected to increase a company’s earnings or other key financial measures. CNBC Investing Club said it downgraded Dover last week after an execution misstep hurt second-quarter results.

What investors are watching next

Several companies tied to the AI trade were scheduled to report earnings Tuesday night, including Seagate Technology, KLA Corporation and Bloom Energy, according to CNBC Investing Club. Visa, Ford Motor and Cheesecake Factory were also on the earnings calendar.

On Wednesday morning, Procter & Gamble is due to report results. CNBC Investing Club said it will watch whether the maker of household and personal-care products can accelerate organic sales growth in its upcoming fiscal year. SoFi, Boston Scientific, Vertiv Holdings, Amphenol, Flex and Humana are also scheduled to report.

There are no major U.S. economic data releases Wednesday, CNBC Investing Club said, but the Federal Reserve is set to announce a rate decision. The central bank is widely expected to keep interest rates unchanged, while CNBC Investing Club said a growing number of voices believe the Fed could raise rates as soon as September.

This story draws on original reporting from CNBC.