Artificial intelligence has been the single most powerful driver of global stock markets since late 2022, reshaping investor strategies and propelling major technology companies to record valuations. Among them, Nvidia (NVDA) has emerged as the bellwether of the AI revolution, holding a dominant position in GPUs that fuel generative AI and machine learning. But with Nvidia set to release its latest quarterly results, markets are bracing for a pivotal test. Will the company’s performance reaffirm the AI rally—or expose cracks in a sector that has grown heavily concentrated around a few mega-cap names?
AI Trade: A Market Powerhouse
Over the last three years, the AI trade has transformed global equities. A basket of 50 AI-related stocks tracked by Bespoke Investment Group has gained nearly 170% since the end of 2022. Nvidia has been at the forefront, surging past a $4 trillion market cap and becoming the most valuable company in the world earlier this year. Its meteoric rise has made it not just a market leader, but the single most influential stock in the S&P 500, accounting for nearly one-quarter of the index’s total return this year.
Meanwhile, other AI beneficiaries—from Microsoft (MSFT) and Alphabet (GOOG) to utilities like Constellation Energy and Vistra—have also enjoyed outsized gains as the AI buildout drives soaring demand for power and infrastructure.
Investor Caution Creeps In
Despite the momentum, cracks are starting to show. The forward price-to-earnings (P/E) ratio of the S&P 500 now stands at 22.4, about 40% higher than its long-term average. For the tech sector, valuations are even steeper, with P/E multiples rising to 29.2—well above historical norms.