BP and Diageo shine on the FTSE 100, as Palantir is investors favourite AI company

Stocks are getting a boost from earnings on Tuesday. European and US futures are higher, after some strong earnings reports. Palantir added to the good news from the tech sector. The AI data firm reported a 48% jump in revenue last quarter, as it reported the ‘astonishing impact’ AI is having on its business model.

Palantir: Top performing US stock this year

US stocks rallied strongly on Monday, and the Nasdaq rose nearly 2%. The strong Palantir results could see this rally extend further on Tuesday. The company is higher by more than 100% so far this year and it is easily outpacing the overall S&P 500 index. In fact, it is the best performing US stock YTD.

A strong basis for stocks   

 The biggest factors driving the S&P 500 in the past few sessions include earnings revisions, momentum and growth. A mixture of momentum, liquidity and a demand for growth stocks have started to power the US stock market this year. These are powerful factors, and with interest rates now expected to be cut sharply by the Federal Reserve, these drivers could drive the US stocks market through to Fall.

BP: Ditches coffee and sticks to Oil

The UK index is higher on Tuesday, but it is underperforming other European indices for a second day, even though BP reported stronger than expected results. Adjusted net income was significantly higher than expected at $2.35bn, vs estimates of $1.75bn, this is still a 15% drop YoY, but it is a significant milestone for the company as it returns to profit. There were slightly weaker than expected earnings from oil production, although earnings from gas production were higher. The performance from other sectors of the business was mixed.

BP is much less interested in telling the public about the number of coffees it sells  each year (in excess of 100mn under former CEO Bernard Looney) and is now  focused on how much oil it can  extract. BP also boosted its dividend and announced a $750mn share buyback programme on the back of the Q2 results. On Tuesday, the share price rose by more than 2.3% and is up by more than 4% in the past month, as the momentum for the company has shifted in recent weeks.

BP sticking to its plan and to the UK

The company has certainly moved on from rumours that it was going to be acquired by Shell, and on Tuesday the CEO affirmed that the company is committed to staying listed in the UK, and a move to the US was not on the cards. On Tuesday, the company announced that it had made its largest oil and gas find for 25 years, which has boosted the share price, which is higher by another 1.2% on Tuesday.

The company has reduced net debt and capex spend, however, it plans to go even further, which is necessary as it comes under pressure from its activist investor, Elliott Management. The company will also conduct a further review under the tenure of its new chairman, to look for further divestment opportunities. CEO Murray Auchincloss has used this earnings report to reinforce the company’s commitment to finding shareholder value, and the message is starting to bear fruit. The share price is rising today even though the company reported a 15% YoY fall in profits.

Diageo to weather tariff storm

Diageo also reported earnings in line with forecasts this morning. Although the environment for high-end spirits remains challenging, it is optimistic about the future and expects earnings growth to be weighed towards the second half of the year. The company expects muted sales growth next year and said that tariffs will lead to a $200mn annual hit to the business, which is higher than its initial estimate of $150mn per year. However, shareholders are cheered after the interim CEO said that half of the tariff hit could be mitigated by cost cuts, and the share price is higher by 6% this morning.

Investors demand cost cuts, but not if you’re an AI firm

In the current environment, if you’re not an AI firm or a tech firm, then investors want to see conservative cash flow management and limited capex spend. There is a two-tier corporate structure right now: the top tier is AI-linked and it can get away with spending billions each year on AI investment. The second tier is basically everything else, especially dinosaur companies like oil firms that aren’t listed in the US. It may not sound fair, but investors still see AI as the future, with other sectors needing to clear a higher bar to impress investors. However, today, both BP and Diageo have managed to do this, and Diageo’s share price is surging this morning and is higher by 6%.

In the FX space on Tuesday, the dollar is attempting a comeback after the recent sell off and as US interest rate cut bets stabilize. The oil price is down a notch on Tuesday but has remained calm during the recent period of stock market volatility, and the gold price is registering small gains on Tuesday and is hovering just below the $3,375 level.