Last week, analysts at JPMorgan Chase remarked that AI trades accounted for more than half of the weighting in the S&P 500 (IVV). The semiconductor sector, which investors may hold through the SMH or SOX ETF, had an 18.2% weighting.
Hyperscalers also had a nearly similar weighting. Those companies are Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT), and Meta Platforms (META). Hardware companies – look at the XTH ETF – were 10% in weighting. Finally, software companies (IGV) was 8%.
So long as chip stocks keep rising in value, their weighting will increase. Momentum investors, fearful of missing out on the winning trade, might bid the subsector higher.
Power suppliers and precious metal firms performed well this year. AI markets need more power and metals.
For now, the AI momentum shows no signs of investment risks. Mega corporations earmarked billions in capital expenditures for AI hardware. Only a hardware shortage is constraining their spending.
Despite the unwavering bullish momentum, a sell-off is possible at any time. It would take either a sudden panic, such as an increased rate of profit-taking, or an unexpected event to cause the AI bubble to pop.
Your Takeaway
Stock markets started this week with investors selling shares of Micron Technology (MU) on above-average volume. If NVIDIA (NVDA), Intel (INTC), and AMD (AMD) follow, the tech sector risks giving back some of its double-digit percentage returns this year.
