The rapid run-up in chip stocks has reignited the AI trade as the S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) sit at record highs.
On Friday, Nvidia (NVDA) hit a $5 trillion market cap while Intel (INTC) posted its strongest single-day gain since 1987.
The euphoria reflects investors’ growing focus on the infrastructure needed to run agentic AI, in which bots or agents act on behalf of users. Its usage has been skyrocketing, lifting demand for central processing units, or CPUs — like the ones Intel makes.
The PHLX Semiconductor Index (^SOX) on Friday extended its winning streak to 18 consecutive sessions.
“We just had a return to optimism around the AI trade,” Cody Acree, senior semiconductor research analyst at Benchmark, told Yahoo Finance.
He added, “I think the optimism around the demand is correct. The demand, spending, the capex budgets are real.”
Hyperscalers are expected to spend some $650 billiion in AI infrastructure this year, with little visibility into when that pace of investment might begin to slow.
And while semiconductors have historically been a cyclical industry, the speed of the AI boom is making it difficult to pinpoint when the cycle will peak and growth will begin to moderate.
“We’re just at the start of inference. This is something that showed up middle of last year — so early innings,” said Matt Bryson, equity analyst at Wedbush Securities, referring to the stage where a trained AI model applies patterns that predict outcomes or answer a user’s prompt.
Intel’s results also bode well for peer AMD (AMD), which reports next month.
“We figured CPUs were the next big bottleneck, but Intel’s results indicate that is already translating to very significant upside,” said D.A. Davidson analyst Gil Luria, who upgraded AMD to a Buy on Friday.
Strategists note that every part of the AI infrastructure play has been catching a bid, from processors to connectivity plays — “anybody that is AI levered, that’s servicing a bottleneck need, whether it’s compute, or memory, or connectivity,” said Benchmark’s Acree, “You could buy a basket of these and all do very well. “
The stock market has looked past uncertainty over the Iran war and persistent $100 oil prices as the focus remains on earnings. Goldman Sachs strategist Ben Snider believes the S&P 500 (^GSPC) will rise to 7,600 by the end of the year.
“The US equity market should continue to make new highs in coming months on the back of continued earnings growth,” wrote Snider last week.
The strategist recommends sticking to players that stand to benefit from the AI trade.
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