AI race powers the stock market forward
Why it matters: When you buy the S&P 500, you invest more than 45% in tech and communication services, given the market cap weighting.
Where tech goes, so goes the market, and until tariffs derail the sector's momentum, levies are on the back burner.
What they're saying: Tech "could be the sole idiosyncratic growth story for this market still over the next 12 to 18 months," according to David Wagner, head of equity and portfolio manager at Aptus Capital Advisors, with $15 billion in assets under management.
By the numbers: Nvidia outperformed the S&P 500 by 37% since the market bottomed on April 8, according to FactSet data.
XLK, an ETF tracking a basket of technology stocks in the S&P 500, is up 11% this year, beating the 6.7% rally in the S&P 500 for the same period.
Zoom out: U.S. technology companies are in the middle of their own war: the AI race. Tariffs are less of a pressing issue, according to Savita Subramanian, head of U.S. equity strategy at Bank of America.
The tariffs in place prior to first quarter earnings "didn't derail the AI…infrastructure theme," which was "really heartening," she says.
Be smart: Not all tech is created equal right now, Subramanian tells Axios.
In conversations with strategists and portfolio managers, tech is brought up frequently, but less so the Magnificent 7 specifically. Tesla and Apple, two members of the seven, are both down double digits year-to-date.
This upcoming earnings season could help investors suss out the winners and losers of a market filled with headwinds for tech, ranging from the AI race to tariff policy.
The intrigue: Earnings expectations for technology are sequentially flat for the quarter, though several market sources tell Axios they expect that will lead to upside surprises in earnings results.
Zoom out: Tech isn't just powering stocks. It's powering the entire economy.
Tech, media and telecommunications capital spending vastly outpaces government stimulus, according to Bank of America and FactSet data. That capital spending is expected to grow exponentially as tech firms compete to win the AI race.
"These hyper scalers are basically doing most of the work to keep the economy going, and so far they haven't said anything about spending less," Subramanian says, indicating the "real drivers" of the economy haven't rolled over.
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