Editor's Note: AI trading is transitioning from "model narrative" to "hardware bottleneck."
Over the past year, when the market discussed AI, the focus was more on large model companies, cloud vendor capital expenditures, and whether AI applications could actually generate revenue. However, this round of stock market gains shows that investors are reassessing the more fundamental and scarcer elements of the AI infrastructure chain: storage, semiconductor manufacturing, and high-performance chip supply.
The surge in the storage chip sector fundamentally reflects that the expansion of the AI industry has entered a more practical stage. Training data, model parameters, inference workloads, and data center expansion all require higher-performance, higher-capacity storage and computing hardware support. For tech giants like Apple, the rise in storage prices means cost pressures; but for chip manufacturers like Micron, SanDisk, Intel, Samsung, this marks the beginning of a new profit cycle.
It is worth noting that the market is not purely optimistic. The Bank of America sentiment index has triggered a "sell" signal for the first time since 2021, indicating that there has been a certain degree of overheating in the current market trend. AI is still the main theme, but the issues investors are focusing on are changing: it's not about who tells the grandest AI story, but about who truly understands the supply bottleneck, who can translate capital expenditures into revenue and profit.
Meanwhile, the Middle East situation, oil price fluctuations, and Federal Reserve interest rate expectations continue to disturb the market. In other words, behind the new highs in the U.S. stock market is not just a single AI frenzy, but rather the combined result of AI infrastructure prosperity, easing geopolitical risks, and liquidity expectations.
The AI bull market is becoming more "physical." When computing power, storage, energy, and the supply chain become real constraints, the market rewards not only storytelling companies but also manufacturers who can provide critical infrastructure.
The original article is as follows:
On Tuesday, investors flooded into the semiconductor sector, propelling the Nasdaq Composite Index and the S&P 500 Index to new highs, further solidifying the PHLX Semiconductor Index's best rally since the dot-com bubble.
Since the end of March, the semiconductor index has risen by 54%, marking its best performance in a 25-day trading period since March 2000. With the surge in demand for key specialized chips for artificial intelligence, chip manufacturers are ramping up production to meet market needs.
The increase in chip prices is driving up costs for tech giants like Apple, but it is a significant boon for the entire chip manufacturing industry. Tuesday's surge propelled Intel's stock price up by 13%, increasing its market capitalization to around $544 billion, surpassing Oracle and Johnson & Johnson. Shares of Micron, Western Digital, and Qualcomm all rose by over 10%, driving the tech-heavy Nasdaq Composite Index up by 1%.
Ohsung Kwon, Chief Equity Strategist at Richland Securities, stated that companies involved in designing, manufacturing, or selling computation chips needed for intensive AI tasks are the biggest beneficiaries in the current large-scale AI infrastructure development. "This is the real bottleneck," he said.
Kwon indicated that AI trading has entered a more sustainable phase: the focus of investors is shifting from capital expenditures to whether this technology can be commercially monetized. This shift in focus is also reflected in last week's earnings reports from tech giants like Amazon and Google—traders are more concerned about whether these companies' significant investments in AI are genuinely translating into revenue.
Despite the ongoing AI craze, Richland Bank's sentiment index has triggered a "sell" signal for the first time since November 2021. Kwon referred to the recent market rally as a kind of "sugar rush" euphoria, indicating that investors should start considering adding protective measures to their portfolios.
Reports suggest that Apple is considering having Intel and Samsung produce main chips for its devices in the U.S., boosting investor optimism and driving up Intel's stock price. Samsung's stock price also rose by about 5% in the Korean market.
Among the major U.S. stock indices, the Nasdaq led the gains, with the S&P 500 Index rising by 0.8%, and the Dow Jones Industrial Average increasing by 0.7%, or 356 points. All 11 sectors of the S&P 500 rose that day, with the materials and technology sectors leading the gains; the small-cap Russell 2000 Index rose by 1.8%, setting a new all-time high. The financial services sector opened lower as Coinbase and PayPal had announced layoffs, but later recovered from losses, ending the day roughly flat.
On Tuesday, investors grew hopeful that the U.S. and Iran would avoid a renewed all-out hostile action following Monday's Persian Gulf flare-up.
The nearby-month Brent crude futures fell 4% to $109.87 per barrel. On Monday, the most actively traded oil contract settled at its highest level in nearly four years after Iran attacked a key oil terminal in the UAE and vessels in the Strait of Hormuz. However, U.S. Defense Secretary Pete Hegseth played down the impact of these attacks on Tuesday, stating that the month-long ceasefire agreement with Tehran remained in effect.
Bill Northey, Senior Investment Director at Bank of America Asset Management Group, said, "At the moment, the situation seems to have not materially escalated, which has eased the market."
He added that despite the apparent easing of hostilities in the Middle East on Tuesday, this conflict continues to have implications for future U.S. economic data and the Federal Reserve's interest rate decisions. For instance, if the Strait of Hormuz were to safely and fully reopen, it would dampen expectations of higher inflation and drive down the yield on the 10-year U.S. Treasury.
Northey said, "Our baseline view is that this volatility is likely to persist."
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