The rapid rise in chip stocks has reignited AI trading as the S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) sit at all-time highs.
On Friday, Nvidia (NVDA) hit a market cap of $5 trillion, while Intel (INTC) posted its biggest single-day gain since 1987.
The euphoria reflects investors’ increasing focus on the infrastructure needed to run agent AI, in which bots or agents act on behalf of users. Its use has skyrocketed, increasing demand for central processing units, or CPUs, like those made by Intel.
The PHLX Semiconductor Index (^SOX) extended its winning streak to 18 consecutive sessions on Friday.
“We just returned to optimism around AI trading,” Cody Acree, senior semiconductor research analyst at Benchmark, told Yahoo Finance.
He added: “I think the optimism around demand is correct. Demand, spending and capex budgets are real.”
Hyperscalers are expected to spend about $650 billion on AI infrastructure this year, with little visibility on when that pace of investment might start to slow.
And while semiconductors have historically been a cyclical industry, the speed of the AI boom makes it difficult to determine when the cycle will peak and growth will begin to moderate.
“We’re just at the beginning of inference. This is something that appeared in the middle of last year, so in the early stages,” said Matt Bryson, an equity analyst at Wedbush Securities, referring to the stage in which a trained AI model applies patterns that predict outcomes or respond to a user’s prompts.
Intel’s results also bode well for its peer AMD (AMD), which will report next month.
“We thought CPUs would be the next big bottleneck, but Intel’s results indicate that is already translating into a very significant advantage,” said DA Davidson analyst Gil Luria, who upgraded AMD to Buy on Friday.
Strategists note that every part of the AI infrastructure has been getting bids, from processors to connectivity plays: “Anyone using AI, they’re addressing a bottleneck need, whether it’s compute, memory or connectivity,” Benchmark’s Acree said, “you could buy a basket of these and they’re all doing very well.”
The stock market has put uncertainty over the Iran war and persistent $100 oil prices behind it, while the focus remains on earnings. Goldman Sachs strategist Ben Snider believes the S&P 500 (^GSPC) will rise to 7,600 points by the end of the year.
“The US stock market should continue to reach new highs in the coming months thanks to continued earnings growth,” Snider wrote last week.
The strategist recommends sticking to players who will benefit from AI trading.