AI infrastructure led, as tech and risk diverged
How are semiconductors performing?
Sixteen days of increases, growth of nearly 40%. Rarely has anything like it been seen anywhere; in fact, it’s the longest SOX [semiconductor sector index] winning streak on record. And it's not one or two names; Nvidia, TSMC, Texas Instruments, analog and digital data storage component manufacturers are all pulling their weight. The fundamentals are still there; demand for AI infrastructure remains strong, capacity is tight, and the entire ecosystem is participating. But price has moved faster than everything else. The index is stretched well above trend, short-term averages are nowhere in sight, and positioning is now clearly crowded. You do not step in front of that. But at these levels, the question changes. It’s no longer what drives the move higher, but who’s left to keep it going. Either way, it’s still an incredible run for the history books.
What’s happening with tech stocks?
The same technology sector but very different reactions: Tesla’s revenue missed expectations, yet its stock is holding up on robo-taxi speculation. The market is still willing to look through the numbers if the narrative is strong enough, which has always been the Tesla way of life. But software did not get the same treatment. ServiceNow and IBM saw sharp stock price reductions, with AI disruption fears front and centre. Investors are no longer giving anyone the benefit of the doubt. The market is still paying for AI infrastructure and capacity, and it’s becoming far more selective when it comes to who actually captures the value.
AI is no longer one trade; it’s starting to fragment.
Is meme trading back?
Some parts of the market are starting to feel familiar again. In the U.S., the pattern day trader rule is on its way out (the rule that traders who execute four or more trades over a five-business-day period using a margin account [borrowed money] must keep a minimum balance of $25,000 in that account). The U.S. Securities and Exchange Commission approved the removal of that $25,000 threshold, which had kept smaller retail investors from active margin day trading. Meme stocks are seeing a comeback, volumes are picking up, and short-term speculation is back in the usual corners. This recent rule change may have helped, but behaviour like this rarely appears without the right backdrop. After the kind of moves we’ve seen in semiconductors and high-volatility tech stocks, this isn’t surprising. Retail follows momentum, it always has. Will this new-found market enthusiasm from retail traders stay contained or start bleeding into a broader risk appetite? We will see, but a fuse has been lit.
What will earnings season tell us?
Earnings season is off to a strong start overall, even with some pressure in software. Next week brings Microsoft and Meta, and the focus will be simple: capital expenditure, AI demand and this cycle’s true sustainability. The S&P 500 has settled at around 7,000. Whether that becomes a support or a hindrance, we’re about to find out.
Listen to the latest podcast from the IG Investment Strategy Team for further insights.
