What's happening with the AI trade?

The AI trade powered stocks late last year and into 2024. It started to stumble in the summer as investors questioned when companies were going to start seeing returns on their massive AI investments. But over the last month or so, those AI stocks have started to rise again.

Market Domination Anchor Julie Hyman breaks down what's been going on with the AI trade.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Stephanie Mikulich.

Video transcript

Well, the A I trade stumbled over the summer after a monster start to the year.

This week, it got a boost from an earnings report and a big new prediction to break down exactly what we've seen and what might be next.

We have market domination.

Co anchor Julie Hyman and Julie.

It has been interesting to track the moves of some of these A I names like NVIDIA, for example.

That's up about 5% this week.

Yes, it is up this week, still down off its highs this year.

So I wanted to look, first of all at what we have seen in the so called A I trade this year.

There are a couple of different ways you can do that.

There, in fact, are a lot of different ways you can do it, so I'm going to do it in a couple different ways.

First of all, by looking at the NASDAQ 100 the 100 largest stocks in the NASDAQ composite now this index peaked back on July 10th after having this big run up to start the year of more than 20%.

Since then, we've had kind of a downturn and then an attempt at a rally, another downturn.

And now we are again in this current attempt at a rally to regain those record highs, the record high, by the way, 20,006.

75 for the NASDAQ 100.

Specifically, we're off about 3% from those levels.

Another way to measure it is to look at the magnificent seven.

Specifically, you can do that by tracking it through an ETF, among other ways.

Now this too, July 10th is that magical date where we saw it peak, and it, too, has seen sort of these ups and downs since then.

To your point, Alan, we've seen sort of a comeback in many of these this week and really over the past several weeks, up 1.5%.

Another way of slicing and dicing.

This is by looking at the semiconductor stocks.

And indeed, NVIDIA is sort of the prime example of what we have seen here in the A. I trade NVIDIA to actually didn't peak on July 10th.

It peaked on June 18th, but then made an attempt to do so again, and also it's down about 10% from those levels.

So what's been happening recently here.

That is sort of given a little bit of a little bit of magic back to that.

A. I trade.

There's been a couple of things that have been going on here.

I'm just equal weight this year to date to get a better look and find the stock that I am looking for.

Which is my Miron.

A part of the story this week, this memory chip maker coming out with its earnings and an earnings forecast.

The sales forecast specifically that was ahead of what the street was looking for and in particular is demand for its high bandwidth memory product, which is a I related that is really juicing.

Some of the enthusiasm, the other thing that has been giving a lot of enthusiasm to the A I trade.

This is a new report out of consulting giant Bain and Company Now, Bain said, Uh, through 2027 we could see an annual pace of A I demand on an annual basis.

So each year of 40 to 55% that would mean you could see up to $990 billion in demand by the end of 2027.

Where is that demand going to come from?

Because we're all still trying to figure out exactly what the deal is with a I how it's gonna play out?

Well, they talk about a lot of that, at least half of it, really being what they call the infrastructure enablers.

And Kate Moore of BlackRock, in an interview with us this week, had some interesting commentary about that.

She said, We're not we're not anywhere near the midpoint of this a. I upside and cycle And she said, Right now we're in the city building phase right?

The infrastructure providers are building the sewers and the streets.

What's gonna be necessary for then, the other stuff to continue to happen, things like applications A. I related IT services, which are some of the other things that the Bain report looks for.

So, uh, obviously you're seeing a huge expectations for gains from here.

There is at least a little bit of scepticism in some quarters.

Maybe not about the underlying A I story, although there is a little scepticism around that, but also about the valuations that we have, of course, seen as a result of all of you know the run up that we have seen in many of these names?

I mean, you know, we know the conversation that we have been having around the likes NVIDIA and just the monster game that it has had.

Still, even with the pullback, not just this year but over the past several years.

We talked to Mike Darta of Roth, MKM.

Yesterday, and he said, typically, you know, this doesn't just go up and keep going up, and it also doesn't flat line and go sideways.

It does tend to roll over a little bit, he said.

Maybe that's part of what is happening right now.

Ali.

Yeah, Julie.

And that valuation the demand story, especially when it comes to some of these a i and A I'm certainly not going away anytime soon.

Thank you so much for joining us.