Economist Mohamed El-Erian is highlighting what he sees as a “fascinating” divergence in the quarterly earnings of two major American companies, AI-giant Palantir Technologies Inc. (NASDAQ:PLTR) and farm equipment maker Caterpillar Inc. (NYSE:CAT).
What Happened: On Tuesday, in a post on X, El-Erian pointed out the “contrasting headlines” from the quarterly earnings releases of both companies early this week. He says, “Palantir is monetizing its AI-powered products at an accelerating rate, while Caterpillar is grappling with the costs of tariffs.”
During its second-quarter results on Monday, Palantir beat expectations on sales and earnings, resulting in the stock surging to a new all-time high.
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Whereas Caterpillar experienced a decline in its operating margins and missed earnings estimates, which it largely attributes to the “impact of higher tariffs,” leading the stock to dip following the results.
This divergence, El-Erian notes, highlights the growing gap between tech companies, especially those that are mainly or “entirely AI-native,” and traditional non-tech businesses, particularly in the manufacturing space.
Why It Matters: A week ago, Michael Kantrowitz, the chief investment officer at Piper Sandler, had predicted the same, saying that “the earnings backdrop is going to be very bifurcated,” suggesting that investors pursue selective stock picking as opposed to index investing.
According to Adam Turnquist, the Chief Technical Strategist at LPL Financial, the S&P 500, which has returned 1.7% over the past month, would be up just 0.5% if not for the “handful of Magnificent Seven names,” referring to the big-tech companies that are all-in on AI.
This again highlights the growing divergence in the markets, with tech, driven by AI, pulling away from traditional sectors and industries.
Photo Courtesy: PJ McDonnell on Shutterstock.com
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