AI Rally Adds $3.5 Trillion to Nasdaq 100 in Four Days

The AI trade is back, driving equity benchmarks to record highs in a surprise August rally.

The S&P 500 closed at a record 7,736, up 1.8%, as the AI trade returned, lifting the Nasdaq 100 by $3.5 trillion in four sessions. The Dow Jones Industrial Average finished above 54,000 for the first time at 54,085, while the Nasdaq Composite gained 2.58% and the Russell 2000 advanced 1.85%.

"Demand for accelerated computing still far exceeds supply, and cloud computing corporations hold the high ground," said Jed Ellerbroek, portfolio manager at Argent Capital Management. The market's judgment, he said, is that the massive capital expenditure undertaken by technology companies will translate into attractive investment returns.

Palantir Technologies led the charge, surging 29.45% to $162.66 and adding nearly $88.8 billion in market value after reporting Q2 revenue up 93% to $1.935 billion, with U.S. commercial sales jumping 149%. Caterpillar contributed roughly 31% of the Dow's advance, adding about 324 points, after quarterly revenue topped $20 billion on AI-driven turbine demand. The Philadelphia Semiconductor Index climbed 5.8%, with Broadcom up 7.1%, Micron gaining 8%, and Intel advancing 10%.

The rally was underpinned by a sharp drop in oil prices. Brent crude fell 5.3% to $79.36 a barrel as Treasury Secretary Scott Bessent indicated a possible U.S.-Iran agreement could reopen the Strait of Hormuz within two days. The 10-year Treasury yield declined, the dollar index slipped 0.03%, and gold advanced 1.52%, while the VIX fell to 15.69.

Earnings Season Delivers Record Beat Rate

Second-quarter earnings have been the primary driver of the rebound. According to Bank of America securities, 85.2% of S&P 500 companies that have reported so far beat market expectations — the highest beat rate since 2021. S&P 500 earnings per share are tracking toward a 50% year-over-year increase, the largest gain since 2021.

SpaceX posted its first earnings since its June IPO, reporting Q2 revenue of $7.8 billion, up 92% and ahead of forecasts, though shares slipped in after-hours trading on concerns about $15.8 billion in capital expenditures tied to AI investments at its xAI division. AMD delivered record revenue of $11.5 billion with data center sales up 107% to $6.7 billion, but shares also fell after the report.

The question now is whether the AI rally can sustain its momentum. Michael Burry of Scion Asset Management has warned that stocks are near a major top, holding short positions in Nvidia, Micron, and Palantir. The semiconductor index had entered bear market territory just weeks ago despite surging profits, and investors remain wary of oversupply risks and competition from China's ChangXin Memory Technologies.

Key tests come this week with earnings from Eli Lilly, Walt Disney, and Block, followed by Nvidia's report on Aug. 26. The July jobs report and JOLTS data will also shape the Fed's rate path, with markets pricing a 57% chance of a rate increase.

This article is for informational purposes only and does not constitute investment advice.