Tech Rally Still Has Momentum Despite Chip Stock Pullback, Analysts Say
Wall Street analysts and investors said the artificial intelligence-driven rally remains supported by corporate earnings and market fundamentals despite recent volatility.
Investors continue navigating a complex backdrop that includes ongoing conflicts in the Middle East and Ukraine, elevated energy prices and uncertainty surrounding global monetary policy. Those factors have contributed to periodic market swings this year, particularly in sectors that have delivered some of the strongest gains during the AI investment boom.
Despite the pullback, some market participants argued that current conditions differ from those seen at the peak of the dot-com era in 2000.
“We think the market today is more similar to early 1999, not Q1 2000,” UBS strategist Andrew Garthwaite wrote in a note to clients Monday, according to CNBC. Garthwaite cited relatively low credit spreads, strong corporate profits, and lower interest rates compared with historical market peaks.
Hedge fund manager Dan Niles, founder of Niles Investment Management, also drew comparisons to the late stages of the 1990s technology rally. Speaking with CNBC on Tuesday, Niles said market conditions resemble those seen in 1998 and 1999, a period that preceded another year of strong gains for technology stocks before the dot-com bubble eventually burst.
The recent weakness in chip stocks followed a strong run through April and much of May. Semiconductor shares sold off sharply on Friday after networking and chip company Broadcom issued revenue guidance that, while still robust, fell short of some investors’ elevated expectations. Stocks rebounded on Monday but fell again on Tuesday.
The semiconductor industry has been at the center of the market’s AI-driven advance. Demand for advanced processors used in data centers and AI systems has fueled significant revenue growth across the sector, helping technology stocks lead broader equity markets higher.
Recent earnings reports from major cloud computing companies have also reinforced investor confidence in AI-related spending. Companies including Microsoft, Alphabet, Amazon and Meta Platforms continued to report substantial investments in artificial intelligence infrastructure and data centers during the latest earnings season, according to Reuters. Those expenditures have supported demand across the semiconductor supply chain.
Market participants have also been watching conditions in the credit markets. Credit spreads on both investment-grade and high-yield corporate bonds remain near historically low levels, a signal often associated with stable financing conditions and investor confidence, CNBC reported.
Meanwhile, monetary policy expectations have shifted in recent months. The Federal Reserve cut interest rates late last year, but rising energy costs and persistent inflation pressures have complicated the outlook. Futures markets currently indicate expectations for one quarter-point interest-rate increase by the end of the year, according to CME Group’s FedWatch Tool.
The technology sector remains a dominant force in U.S. equity markets. Technology and communication services companies account for a significant share of the S&P 500’s market capitalization, while AI-related stocks have been among the strongest contributors to index performance since 2023.
Investors have periodically raised concerns about concentration risks and stretched valuations as gains become increasingly concentrated among a handful of large technology companies. Similar concerns resurfaced during the recent semiconductor sell-off, according to The Wall Street Journal, which reported that investors have been debating whether AI-linked stocks have become overheated following their rapid advance.
Even so, recent earnings growth among major technology companies and continued spending on AI infrastructure have remained central themes in the market, according to CNBC and other financial media reports, despite heightened volatility across semiconductor shares over the past week.
