AI Surge Sees NASDAQ Triumph Over Dow Jones
As enthusiasm for AI investment escalates, market movements are highlighting a clear divide. Last week, while the NASDAQ 100 Index (^NDX), consisting of the top 100 tech stocks, saw over a 3% boost, the Dow Jones Industrial Index (^DJI) was mired in a slump. This scenario, a rarity only seen five times since the dot-com bubble burst, marks a fascinating turn in market
events.
Investors Flock to AI Amid Market Doubts
A deeper analysis of the market unveils an intriguing pattern. Last week, a greater number of NYSE-listed stocks hit new 52-week lows than highs. However, the NASDAQ 100 simultaneously surged by over 2%. These indicators, typically associated with market stress situations like bear and early-stage bull markets, suggest a shift in investor behavior. Instead of embracing the broader market, investors seem to be turning their focus towards AI-centered companies.
The ‘Magnificent Seven’ Tech Stocks Reign Supreme
This shift has resulted in a concentration of gains into a select few tech giants, aptly labeled the ‘Magnificent Seven’ by Bank of America strategist Michael Hartnett. These companies — Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA) — have seen remarkable growth in 2023, collectively gaining $3.35 trillion, which accounts for 84% of NASDAQ 100’s $4 trillion growth this year. Apple and Microsoft, in particular, have outperformed the remaining 93 companies combined.
Chipmakers and Software Firms Enjoying the AI Wave
While the majority of valuation gains are attributed to these seven tech giants, a number of software and chip companies are also benefiting from the AI boom. Marvell Tech (MRVL), a leading chipmaker, saw a 65% spike this month, with expectations of doubling its AI revenue by fiscal 2024. Cloud-based security firm Zscaler (ZS) and American Micro Devices (AMD) also recorded impressive returns, with gains of 45% and 42%, respectively, this month.
Investor Shift Towards AI Amid Economic Uncertainties
Retail names in both the consumer discretionary and staples sectors experienced a setback this May, reflecting a shifting investor focus. As the US debt ceiling appears close to a resolution and the Federal Reserve’s future steps remain uncertain, markets are increasingly prioritizing ‘artificial’ concerns, with AI taking center stage. As noted by Citi strategists, “US markets are powered by the AI theme, which tends to increase rates sensitivity even further”, making the AI trade a key determinant of market movements.
AI Becomes the New Market Conviction
In the absence of a macro narrative in 2023, a new micro narrative around AI seems to have gained traction. The surge in AI investments, backed by strong performances by the ‘Magnificent Seven’, signifies a new direction for investors and markets alike. As the AI sector continues to evolve, it is expected to influence market trends and investor behavior in the foreseeable future.
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