AI Stocks Mount Dramatic Recovery After Market Shakes

Wall Street exhibited a steadier performance on Monday, with the S&P 500 rising 0.3%, recovering from its first losing week in three and only its third since late March. The Nasdaq composite also saw gains, climbing 0.5%, largely driven by a recovery in chipmakers and other beneficiaries of the artificial-intelligence (AI) boom. In contrast, the Dow Jones Industrial Average experienced a slight dip, down 92 points or 0.2% as of 10:15 a.m. Eastern time.

Key AI-related stocks showed a rebound after recent pressures. Nvidia, a prominent chipmaker, rose 1.4%, helping to mitigate the market's previous losses after its significant drop on Friday was the heaviest weight on the S&P 500. Sandisk also saw a notable increase of 3.9% following a substantial 29% tumble last week. Advanced Micro Devices (AMD) advanced 3% on the news of an expanded partnership with Microsoft, where its products, including the new Helios, will be utilized for AI applications starting in the second half of the year.

Despite these gains, concerns persist regarding the high valuations of AI stocks. Investors are questioning whether the current euphoria around AI has pushed prices too high, and if the substantial spending on AI chips and data centers will translate into promised profits and productivity. Upcoming quarterly results from major AI spenders, such as Alphabet, which reports on Wednesday and will provide updates on its AI endeavors, are highly anticipated to offer clearer insights into these trends. All kinds of companies are under pressure to report strong growth in profit for the spring to justify the big moves their stock prices have made, especially with indexes near their records despite the recent shakiness for AI stocks.

Beyond the tech sector, other companies reported positive news. AMC Entertainment's stock surged 10.6% after the movie-theater operator exceeded analysts' revenue expectations for its latest quarter. The company also highlighted the success of running “The Odyssey” for more than 85 consecutive hours in some of its theaters in Los Angeles and other cities due to high demand. Domino’s Pizza also climbed 3.1%, reporting stronger-than-expected revenue for the spring, with growth observed in both its carryout and delivery businesses, despite broader industry pressures on consumer demand.

These consumer demand pressures are largely attributed to persistent high inflation, significantly influenced by elevated gasoline prices. Although inflation figures last month were not as bad as economists anticipated, there are concerns about a potential reacceleration if oil prices continue their upward trajectory. The price for a barrel of Brent crude oil, which had dropped below $72 early this month and was roughly back to its level before the war with Iran began, has since been jumping as fighting continues in the Middle East. On Monday, it swung between approximately $86 and $91, most recently settling at $88.17, up 0.1%.

The anxieties surrounding expensive oil and high inflation have had a noticeable impact on the bond market, pushing Treasury yields higher. The yield on the 10-year Treasury, a benchmark for various lending rates, increased to 4.58% from 4.55% late Friday and significantly from just 3.97% before the war with Iran. Higher yields inherently threaten to slow economic growth and could undercut prices for stocks and other investments. Consequently, the average 30-year mortgage rate has already reached its highest level in nearly a year.

Internationally, stock markets showed mixed movements. Indexes in Europe ticked lower, while Asia experienced sharper declines. South Korea’s Kospi, notably dominated by tech giants Samsung Electronics and SK Hynix, fell 4.5%, placing it at the epicenter of the substantial swings seen in AI-related stocks globally.