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US stocks closed their best month since 2020 at record highs as investors bet the AI boom will deliver a windfall to America’s tech behemoths.
The S&P 500 climbed 10 per cent in April — its biggest monthly jump since the November 2020 Covid-19 vaccine breakthrough — as the market rebounds from a sell-off triggered by soaring energy prices in the early weeks of the Middle East conflict.
Technology stocks have powered the comeback, sending the tech-heavy Nasdaq Composite index surging 15 per cent in April, its best month since April 2020.
Investors have piled back into US tech stocks as analysts have revised their profit forecasts to new highs, banking on booming AI infrastructure spending by a handful of Silicon Valley companies to support economic growth.
Alphabet jumped 10 per cent on Thursday, taking gains this month to about 34 per cent, helped by faster cloud growth than its rivals. Chipmaker Intel has soared 114 per cent this month, the biggest gain in the S&P 500, boosted by strong results, while memory giants Sandisk and Seagate Technology Holdings and chipmaker ON Semiconductor have all risen strongly.
April’s huge rally for semiconductor stocks, in particular, was “absolutely absurd”, said Mike O’Rourke at Jones Trading. “Equity investors remain unfazed by the Strait of Hormuz stalemate.”
The rally has come despite a surge in oil prices, with Brent crude rising above $125 a barrel on Thursday, which has lifted petrol to about $4 per gallon at the pump across the US.
It also comes despite wobbles in some tech megacaps, with Meta tumbling about 9 per cent on Thursday after reporting a drop in users and a further increase in capex, reducing its gains this month to about 7 per cent. Microsoft dropped 4 per cent on Thursday.
First-quarter earnings from the big four “hyperscalers” this week confirmed the sector’s strong capital expenditure plans. Amazon, Meta, Microsoft and Alphabet are together expected to spend a record $725bn on AI infrastructure this year, a 77 per cent increase on last year’s record spending.
“Every report from Big Tech companies confirms that demand for AI, for compute, for chips, is still exceptionally strong,” said Marija Veitmane, head of equity strategy at State Street.
Veitmane said that the bank’s custodial data shows institutional investors have added to their holdings of US stocks, particularly in the tech and energy sectors, since the start of the conflict.
“Every other region has seen capital leaving,” she said. Bloomberg data also shows that investors have poured $125bn into US equity exchange traded funds in April, while European and Asian funds have both suffered net outflows.
“Right now is the time to find areas which can withstand the squeeze on margins better than others — that is tech,” Veitmane said. “What is the alternative?”
Citi upgraded its recommendation on US equities to “overweight” relative to other regions this month, with head of global equities strategy Beata Manthey saying that “tech is carrying the weight” of the broader market.
The rally was “officially killing off the brief dispersion out of megacap tech AI into everything else” that began late last year and extended into February, said Nomura analyst Charlie McElligott.
Tech is “in total control of index returns yet again”, he added.
At the same time, economic data released this week suggests the US economy is beginning to feel the effects of the war in Iran even as tech stocks race away from the rest of the pack.
The world’s biggest economy grew at an annualised pace of 2 per cent in the first three months of the year, below the 2.2 per cent forecast by economists polled by Bloomberg. Headline inflation, which is closely tracked by the Federal Reserve, rose to 3.5 per cent in March, its highest level in almost three years.
Investors have slashed their bets on interest rate cuts by the Fed this year, as soaring oil and gas prices threaten to spark a surge in inflation.
“The market has been largely shrugging things off,” said Dan O’Keefe, a portfolio manager at Artisan Partners. “When things get volatile and scary, people fell back on things they feel confident of.”
O’Keefe noted that while the interest rate repricing will hurt parts of the stock market, “these [tech] companies are not really impacted by interest rates”.