There are clear winners in the AI race. Everyone else, however, isn't so much a loser, but a bystander reaping no benefits — and that could have implications on broader markets.
First, the winners. Semiconductor companies — especially those involved in manufacturing chips that serve as the brains of AI models — have been enjoying massive rallies. On Tuesday, Nvidia briefly flirted with a $1 trillion market cap, while other chipmakers like Marvell and Broadcom hit 52-week highs (even though their shares dipped at the close).
Big Tech firms enjoyed a boost as well. Amid the excitement over AI, shares of both Apple and Microsoft were juiced to their highest levels in a year.
But not everyone's hopping on the bandwagon. Some, in fact, got off before it even started rolling. Cathie Wood — the famed investor of next-generation technologies — sold off all Nvidia holdings in her Ark Innovation ETF in January. "At 25x expected revenue for this year, however, $NVDA is priced ahead of the curve," Wood said in a Twitter post Monday.
More crucially, the rally in markets has been narrow so far. Over the past three months, the S&P 500 has advanced nearly 6%, but the Invesco S&P 500 Equal Weight ETF has fallen more than 3%.
"We're not seeing any signs of broad participation. We're not seeing signs of early cyclicals on top of A.I.," said Andrew Smith, chief investment strategist at Delos Capital Advisors in Dallas. That disconnect could lead to a retreat by markets soon, warned Javed Mirza, technical analyst at Canaccord Genuity, a large investment firm in Canada.
Meanwhile, the broader economy isn't faring so hot. Oil prices sank more than 4% Tuesday, in a sign traders aren't optimistic about global economic growth. On an individual level, U.S. consumers were also less upbeat about the economy in May than April, according to the Conference Board's consumer confidence index.
"Their assessment of current employment conditions saw the most significant deterioration," said Ataman Ozyildirim, senior director of economics at The Conference Board. The jobs report for May, coming out Friday, will paint a clearer picture of the labor market. After all, in markets, expectations might not match reality — a lesson we've learned again and again since last year.
