The S&P 500’s AI-focused sub-index has surged 47% year-to-date, dramatically outpacing the broader market’s 12% gain and confirming that investor enthusiasm for artificial intelligence remains one of the most powerful forces in global financial markets. The rally has been broad-based across the AI supply chain — from chip manufacturers to cloud providers to software companies — with a second wave of AI-adjacent sectors beginning to show returns.
The First Wave: Infrastructure
Nvidia remains the defining stock of the AI investment thesis, with shares up over 70% this year alone following a 2023 gain exceeding 200%. The company’s dominant position in AI training chips has translated into revenue growth that has consistently surprised even the most bullish analysts. TSMC, the Taiwanese semiconductor manufacturer that fabricates Nvidia’s chips, has similarly rewarded investors with a 55% year-to-date gain as it expands advanced packaging capacity.
Cloud providers — Microsoft Azure, Amazon Web Services, and Google Cloud — have all reported accelerating AI-related revenue, with Microsoft leading the pack after its deep OpenAI integration generated an estimated $10 billion in incremental annual recurring revenue.
The Second Wave: Applications
Investors are now looking beyond infrastructure to software companies successfully monetizing AI capabilities. Salesforce, which has embedded AI deeply into its CRM platform, has seen its stock re-rate significantly as analysts revised revenue estimates upward. ServiceNow, Adobe, and Workday have all reported AI-driven seat expansions and pricing power that wasn’t present two years ago.
Valuation Concerns
Not everyone is bullish. Several prominent investors have raised concerns about AI valuations, arguing that current prices assume a pace of enterprise AI adoption that may take longer to materialize than expected. Michael Burry — famous for shorting mortgage-backed securities before the 2008 financial crisis — has reported short positions against several AI-related ETFs. “The infrastructure buildout is real, but infrastructure buildouts always overshoot,” Burry said in a letter to investors.
What to Watch
Analysts highlight several upcoming catalysts that could move AI stocks significantly in either direction: quarterly earnings from Nvidia and Microsoft in the coming weeks, the release of new foundation models that could alter the competitive landscape, and any signals from the Federal Reserve about interest rates — which have an outsized effect on high-growth technology valuations.