Semiconductor chipmakers are now leading the AI rally, outshining Big Tech.
Nvidia shares rose almost 9% after strong earnings.
Chip stocks account for 37% of S&P 500 gains this year.
What happened
Nvidia shares climbed almost 9% Thursday after strong earnings, doubling sales from a year ago. The tech-heavy Nasdaq rose 1.57% and the S&P 500 rose 0.72%.
Why it matters
Chip stocks have accounted for 37% of the S&P 500's $7.6 trillion in market value gains this year, according to Mike O'Rourke at JonesTrading. Big Tech stocks like Meta have dropped as they pour billions into AI infrastructure.
What to watch
The market's reliance on chip stocks presents risks. James Reilly of Capital Economics said if semiconductor firms start to struggle, the stock market would be in big trouble.
Ask the AI about this article →
The article highlights a significant shift in the AI rally's leadership from Big Tech to semiconductor chipmakers. Nvidia's strong earnings, which included doubling sales from a year ago, have propelled its stock and the broader market. This contrasts with Big Tech stocks like Microsoft, which is up just 4% this year, and Meta, which has dropped as it invests heavily in AI infrastructure.
Chipmakers are benefiting from their role as the "picks and shovels" providers for AI infrastructure, including hardware and services for data centers. However, this concentration of market gains in chip stocks raises concerns. Strategists warn that if these leaders stumble, the broader market could face trouble. Investors have already seen how news like Broadcom's slightly missed forecast can sharply impact share prices.
While some analysts remain optimistic, drawing parallels to the late 1990s mania, they also caution about a potential shift in sentiment, particularly if Big Tech's AI spending slows. The higher earnings expectations rise, the less patience there is for disappointment, making the market potentially more volatile.
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