AI Stocks Have Fueled the Bull Market for 3 Years—Will the Momentum Continue?

The U.S. stock market entered the final quarter of the year near record highs, boosted by soaring AI stocks that have become increasingly critical for the market’s performance.

Most of the best-performing stocks in the S&P 500 this year are directly tied to the AI boom. Data storage companies Seagate Technology (STX) and Western Digital (WDC) have seen their shares nearly triple in value this year, while Palantir (PLTR) and Applovin (APP), two software firms that have excelled at translating AI capabilities into revenue, have more than doubled. And despite a rough start to 2025, all of the Magnificent Seven stocks are up since the start of the year. 

The Magnificent Seven account for one-third of the S&P 500, and thus have an outsized influence over the broader market’s performance. And these stocks, experts say, are increasingly tied to AI. 

The Mag 7’s “share prices are a daily referendum on whether AI is considered hype or reality,” wrote Christopher Gannatti, Global Head of Research at WisdomTree, in a recent blog post. They “are priced as if AI is not just a growth driver, but the growth driver,” Gannatti added.

As such, the investments, deals and optimism propelling the AI trade are likely to be pivotal for the entire stock market in the coming months. 

CapEx Likely To Remain in the Spotlight

Massive infrastructure investment from the likes of Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN) and Meta (META) has been a primary source of fuel for the AI rally. Their spending has caused revenue at chipmakers like Nvidia (NVDA), Broadcom (AVGO) and Micron (MU) to explode, and underpinned the narrative that AI demand is insatiable.

The hyperscalers will all update investors on their capital expenditure plans when they report quarterly results in late October and early November. Alphabet and Meta each lifted their capex forecasts in their most recent earnings reports, while Microsoft and Amazon said they would continue to invest heavily in infrastructure throughout the year. 

Tax changes codified by the One Big, Beautiful Bill, which empowers companies to immediately write off infrastructure investments, could give them reason to lift capex further. Experts note immediate write-offs should boost free cash flow, allowing companies to invest even more in AI. Hyperscalers have had a few months to figure out how the bill, which was signed into law by President Donald Trump on July 4, will affect their finances and, thus, investments.

Citi analysts on Tuesday estimated that hyperscalers, including Oracle (ORCL) and CoreWeave (CRWV), will spend $490 billion on infrastructure, up from their prior estimate of $420 billion. “We expect the major hyperscalers to reflect this incremental spend in guidance discussions during 3Q results,” the analysts wrote.

Unexpected increases to capex guidance could reinforce Wall Street’s bullishness on the semiconductor, software, and energy companies benefiting most from the AI buildout. 

Big, Multi-Year Deals Are Gaining More Attention

“We’re seeing a bit of an evolution” in the drivers of the AI rally, Gannatti told Investopedia. 

“It kind of started with the hyperscalers—Microsoft, Amazon, Alphabet—saying, ‘We have a certain amount of cash flow. We’re going to make investments.’” Today, Gannatti says, AI companies are investing in one another, and using those investments to buy goods and services from each other. 

The most notable example of this was announced last month, when OpenAI committed to deploying 10 gigawatts of Nvidia systems to train and run its next-generation models. In return, Nvidia will invest $100 billion in OpenAI as capacity comes online, effectively subsidizing the start-up’s infrastructure expenses.  

“So there’s a bit of circularity,” says Gannatti, who notes there’s a risk to these sorts of deals. “None of these things are guaranteed,” he said, including OpenAI’s commitment to spend $300 billion on Oracle’s cloud computing services over the next five years. “If the business environment changes, the music might need to stop—not necessarily forever, but for a while.”

Concerns About an AI Bubble Likely To Persist

Investors have worried about an AI bubble for quite some time, and the rally faces the risk that AI sentiment sours, weighing on investment and depressing stock valuations. 

So far, tech companies have been able to show investors enough benefit from AI to keep Wall Street comfortable with their spending, said Gannatti. “But you feel like you’re always one earnings cycle away from a negative interpretation of a certain announcement,“ the kind of less-than-ideal development that throws cold water on a red-hot market, he added. 

Several events this year have briefly appeared to be this watershed moment. In January, investors caught wind of Chinese start-up DeepSeek’s super-efficient reasoning model, briefly calling into question the wisdom of Silicon Valley’s AI spending. And AI stocks swooned over the summer when an MIT study found that 95% of corporate generative AI pilot projects failed to deliver any material return on investment. Yet, on every occasion, investors have shaken off the panic and continued to pile into AI stocks.

There are reasons to be optimistic that today’s AI boom is more resilient than the bubbles to which it is often compared. “The positive is it’s not being financed by debt, at least not yet,” said Gannatti. “So it’s not like the fiber optic buildouts in, say, 1999 and 2000, where the companies didn’t even have the fundamentals.” 

Instead, the companies funding the AI buildout have some of the biggest businesses, healthiest balance sheets, and deepest pockets of any companies on earth. Their hugely profitable non-AI businesses could mitigate the fallout of a shift in sentiment toward AI.