U.S. stocks closed higher on Wednesday as investors refocused on the profitability of artificial intelligence and the outlook for continued corporate investment. SpaceX reported results showing rapid growth in its Super Intelligence and Starlink businesses, while CEO Elon Musk confirmed that special board committees at SpaceX and Tesla are discussing a potential merger. Investors are also awaiting third-quarter results from Tesla and Meta Platforms for evidence that heavy AI spending is translating into revenue and profits.
The technology-heavy Nasdaq Composite rose 1.1% to 26,702. The S&P 500 gained 0.6% to 7,757, while the Dow Jones Industrial Average advanced 0.7% to 52,856.
The Treasury market was comparatively steady. The two-year Treasury yield rose 2.3 basis points to 4.81%, while the 10-year yield edged up 0.6 basis points to 5.123%. The 30-year yield fell 1.2 basis points to 5.413%.
SpaceX and Tesla Boards Discuss Potential Merger
SpaceX released its results after Tuesday's close, reporting better-than-expected net income. Fast growth in Super Intelligence and Starlink was a key driver, and related shares rose 7.8% on Wednesday. Attention then shifted to the potential combination with Tesla.
Musk said on the earnings call that the boards of both SpaceX and Tesla had formed special committees to examine the possibility of a merger. He said combining the two companies could make strategic sense, particularly in the development of superintelligent software, where he sees potential synergies.
The companies have not disclosed a transaction structure, valuation terms, timetable or regulatory approval plans. If the discussions move into a formal process, investors will focus on the size of the transaction, how shareholder interests would be allocated and how the companies' different businesses could be integrated.
Daniel Skelly, a portfolio manager at Morgan Stanley Wealth Management, said recent volatility in AI-related trades may have unsettled investors. But with economic growth remaining solid and corporate earnings strong, the pullback may also reflect a reassessment of valuations and the returns expected from AI investment.
Skelly said concerns about AI capital spending were not without basis, given that some previous innovation cycles in the United States expanded rapidly before contracting. At the same time, he said the long-term AI investment cycle remains in progress, with companies carrying stronger balance sheets likely to have greater capacity to participate.
AT&T Beats Estimates as Subscriber Growth Slows
AT&T exceeded market expectations for third-quarter revenue and earnings per share, raised its full-year profit guidance and accelerated its share-repurchase program. Revenue rose 5.3% from a year earlier to $32.3 billion, above the $31.7 billion consensus estimate. Earnings per share came in at 65 cents, compared with expectations of 60 cents.
The company now expects 2026 earnings per share of $2.40, above the $2.25-to-$2.35 range issued in July. CEO John Stankey said AT&T delivered faster growth during the quarter and plans to increase its share buybacks to about $10 billion this year.
AT&T shares nevertheless fell 6.5% on Wednesday. The company added 379,000 postpaid subscribers during the quarter, just below the market expectation of 379,300 and down from 432,000 in the second quarter. Because postpaid customers generally provide recurring revenue, the slowdown was viewed as a sign of intensifying competitive pressure.
Verizon Communications fell 2.2% on the same day, while T-Mobile US declined 2.5%. Competition across the telecom industry has drawn greater attention since SpaceX accelerated its push into consumer wireless services on October 8. SpaceX previously spent $8 billion to acquire spectrum and plans to bring Starlink into competition with established telecom operators.
As of October 20, AT&T was down 4.7% for the year, compared with a 0.7% decline for the S&P 500. Verizon had fallen 2.3%, while T-Mobile US was down 7.9%. The moves show that investors are weighing traditional carriers' subscriber performance and capital-return plans alongside the potential effect of a new entrant on market share.
Meta Results to Test the Payoff From AI Spending
Tesla and Meta Platforms are due to report third-quarter results after Wednesday's close. Independent technology analyst Luke Lango said Meta is moving beyond its identity as a pure advertising company and toward the frontiers of AI, a shift he believes the market has not fully reflected.
Lango expects Meta's third-quarter revenue to exceed the consensus estimate of $63.3 billion, potentially by more than $1 billion, with growth possibly topping 20%. He is watching user data for Muse, Meta's AI agent product. About six weeks after its launch, the product had been downloaded more than 10 million times, indicating that AI applications can attract users in a relatively short period.
In Lango's view, SpaceX's results suggest that AI agents and the computing capacity needed to run them are beginning to generate actual revenue. That development could influence how investors assess capital spending. Meta will need to provide more detail on advertising performance, Muse's active users, usage frequency and monetization progress to show whether its AI investment is translating into sustainable operating results.
Until more technology companies report results and guidance, the central market question remains whether AI spending can continue to generate revenue growth. Investors are also assessing whether the additional capital spending required by large companies to secure computing capacity will produce returns commensurate with the investment.