The Impact of Artificial Intelligence on Tech Stock Rally

by webmaster

The technology stock rally that has taken place over the past seven months has been largely attributed to the widespread adoption of artificial intelligence (AI). This trend shows no signs of slowing down, as evidenced by the remarkable performance of Nvidia Corp. shares, which have more than tripled during this period. However, it is worth noting that a similar rally occurred in 2014, with four other companies also making it to the top 10 performers.

According to Dow Jones data, the S&P 500 Information Technology Sector Index XX:SP500 finished higher for seven consecutive months in August 2023. This achievement had not been seen since August 2014, when the index also experienced seven months of consecutive growth.

What sets this year’s rally apart is the significant impact of AI on tech stocks. Over the course of the seven-month period ending in July 2023, the index has surged by an impressive 45.8%. In comparison, the rally in 2014 only resulted in a gain of 16.6%, highlighting the increasing influence of AI. These positive trends have also continued into August, with the index rising by 0.3% during Tuesday’s trading session.

The enthusiasm for AI-driven technologies is further reflected in the performance of specific sectors within the tech industry. The PHLX Semiconductor Index SOX has experienced a remarkable surge of 52.5% year to date, as of Monday’s closing. Meanwhile, broader benchmarks such as the S&P 500 index SPX have grown by 19.5% and the tech-heavy Nasdaq Composite COMP has gained 37.1%. Notably, Nvidia NVDA shares have seen an astronomical increase of 220%.

Read: Will AI do to Nvidia what the dot-com boom did to Sun Microsystems? Analysts compare current hype to past ones.

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A Closer Look at the Top Performers in Both Streaks

During two notable streaks in July 2023 and August 2014, there were four companies that consistently stood out as top performers. In each streak, these companies managed to secure a spot in the top 10 performers. What makes their achievement even more impressive is the diversity of their industries: one focuses on phone chips, another specializes in cybersecurity, the third is involved in manufacturing chip-making machines, and the last excels in creating power systems for computers.

Let’s take a closer look at these remarkable companies:

  1. Broadcom Inc. (AVGO): This company is a leader in the production of phone chips, showcasing their expertise in the field.

  2. Palo Alto Networks Inc. (PANW): Known for their expertise in cybersecurity, Palo Alto Networks has consistently delivered exceptional performance.

  3. Lam Research Corp. (LRCX): Lam Research Corp. specializes in manufacturing the machines responsible for producing chips, making them an integral part of the industry.

  4. Monolithic Power Systems Inc. (MPWR): With a focus on power systems for computers, Monolithic Power Systems has proven to be an influential player in the market.

Based on data from FactSet and Dow Jones, these were the outstanding performers during both streaks.

  1. Monolithic’s stock slips as outlook overshadows earnings beat: Discover why Monolithic Power Systems’ stock experienced a slip and the factors that overshadowed their earnings beat.

  2. Lam Research CEO: AI servers are ‘fundamental’ to driving growth in next several years: Gain insights from an interview with the CEO of Lam Research as they discuss the significance of AI servers in driving future growth.

Looking ahead, keep an eye out for earnings reports from Qualcomm, scheduled to release their report after the bell on Wednesday, and Palo Alto Networks, set to report at the end of August.

Let’s reflect on the performance of the IT index following the streaks in July 2023 and August 2014:

July 2023 seven-month streak leaders

August 2014 seven-month streak leaders

According to Dow Jones data, after the streak in August 2014, the IT index experienced the following changes: a 0.8% decline one month later, a 5.9% rise three months later, a 7.9% gain six months later, a 0.9% increase one year later, and an impressive 17.8% rise two years later. This data highlights the long-lasting impact of these streaks on the IT index.

In conclusion, these companies’ consistent performance and notable streaks in both July 2023 and August 2014 demonstrate their influence and resilience in the market. Keep an eye on their future developments and earnings reports for further insights.

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