3 Reasons the Historic Rise of AI Stocks Will Continue

Jensen Huang's chip demand comments, OpenAI's valuation hike, and Klarna's success with AI are three signs that the AI revolution is far from over and the build-out will continue. Expect AI to lead the tech sector and buoy the market into 2025. Read More...

Wednesday, stocks soared and have recovered most of last week’s losses. As has been the case several times during the current bull market, tech stocks and the Nasdaq 100 ETF (QQQ) led the way higher.

While there has been some rotation recently, tech stocks again flexed their muscles, as evidenced by the QQQ doubling the gains of the other major U.S indices with its more than 2% gains on massive volume. What caused the market’s dramatic gains on Wednesday, and is the current correction over, or is the current rally nothing more than an oversold technical bounce?

The AI Buildout isn’t Slowing

General Motors (GM) CEO Charles Wilson once said in a congressional hearing, “As goes GM, so goes the market.” The quote went viral and is still cited today because it illustrates how, during bull market cycles, leading stocks in top industry groups can be a leading indicator. The artificial intelligence (AI) market ballooned from about $50 billion in 2023 to $184 billion in 2024 and is expected to grow to $826 billion by 2030 (according to Statista).

Nvidia is the Market Leader

Nvidia (NVDA) is the leader of the current bull market because its high-performance chips are perfect for the accelerated computing needed for AI. Rarely has a company of Nvidia’s size been able to produce such impressive earnings growth. From 2023 to 2024, NVDA’s annual earnings per share (EPS) will more than quadruple, and in 2025, Wall Street expects it to double again.

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While Nvidia and fellow AI juggernauts like Arm Holdings (ARM) continue to produce robust earnings, there have been rumblings on Wall Street that AI-related purchases have gone too far, and that growth is not sustainable and will slow. However, this week, three significant happenings in the AI industry suggest that the AI buildout has much more meat on the bone.

1. Jensen Huang Comments Spark Nvidia Rally

Yesterday at the Goldman Sachs (GS) tech conference NVDA CEO Jensen Huang said, “Demand for chips is great.” This seemingly simple statement reconfirmed to investors the massive demand for chips, sparked about a $250 million gain in NVDA’s market cap, and sent the Nasdaq flying higher. No one on Wall Street has their finger on the pulse of AI demand like Huang.

2. OpenAI Valuation Soars

OpenAI, which runs the most successful large language model (LLM) ChatGPT and counts Microsoft (MSFT) as its most prominent investor, is said to be seeking a more than $6 billion investment which would value the company at about $150 billion. OpenAI was valued at less than $100 billion earlier this year. Though the company’s revenues are minuscule compared to its valuation, the rise in value shows that investors are still anxious to get their hands on a piece of one of the most sought-after companies within the AI revolution.

3. Klarna Shaves Costs with AI

Sebastian Siemiatowski, the CEO of Swedish fintech giant Klarna, said this week that the company would sunset its software purchases from Salesforce (CRM) and Workday (WDAY) and replace them with AI-built internal tools. Earlier in the year Klarna announced that it was able to dramatically cut costs and increase customer satisfaction with AI. Klarna’s success in cutting costs with AI is likely to have a snowballing effect on tech companies looking to cut costs.

Bottom Line

Jensen Huang’s comments, OpenAI’s valuation hike, and Klarna’s success with AI are three signs that the AI revolution is far from over and the buildout will continue. Expect AI to lead the tech sector and buoy the market into next year.

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