On Tuesday, investors heavily purchased shares of memory chip manufacturers, pushing the Nasdaq Composite and S&P 500 indices to new all-time highs and marking the Philadelphia Semiconductor Index's strongest performance since the dot-com era. Since late March, the index has surged by 54%, achieving its best 25-trading-day performance since March 2000. Chipmakers are ramping up operations to meet surging demand for specialized equipment essential for powering artificial intelligence (AI). Rising memory chip prices have increased costs for tech giants like Apple but have provided a financial boost to manufacturers in the sector. Tuesday's rally drove Intel's stock price up by 13%, elevating its market capitalization to approximately $544 billion, surpassing both Oracle and Johnson & Johnson. Shares of SanDisk, Micron Technology, and Qualcomm each rose more than 10%, helping lift the tech-heavy Nasdaq Composite by 1%. A chief equity strategist at Wells Fargo Securities noted that companies involved in designing, producing, or selling computer chips required for intensive AI tasks are the primary beneficiaries of the current large-scale AI infrastructure build-out. “This is truly the bottleneck,” he stated. The strategist added that AI-related trading has entered a healthier phase, with investors now focusing more on the technology's monetization rather than capital expenditures. This shift in focus was reflected in recent earnings reports from tech giants like Amazon and Google, where traders closely examined whether significant AI investments are generating actual revenue. Despite the widespread enthusiasm surrounding AI, Wells Fargo's investor sentiment indicator triggered a "sell" signal for the first time since November 2021—suggesting that investors should incorporate protective measures into their portfolios following what the strategist described as a period of "brief euphoria" in financial markets. Investor optimism also boosted Intel's shares following reports that Apple is exploring the possibility of manufacturing primary chips for its devices in the U.S., potentially in collaboration with Samsung. Samsung's stock rose approximately 5% in South Korean trading. The Nasdaq Composite led gains among major U.S. stock indices, with the S&P 500 rising 0.8% and the Dow Jones Industrial Average advancing 0.7%, or 356 points. All 11 sectors of the S&P 500 closed higher, led by materials and technology stocks. The small-cap Russell 2000 index climbed 1.8%, also reaching a record high. The financial services sector opened lower after Coinbase and PayPal announced workforce reductions but later recovered, ending the day largely unchanged. On Tuesday, growing hopes that the U.S. and Iran would avoid a full-scale return to hostilities following Monday's conflict in the Persian Gulf contributed to positive sentiment. Brent crude futures for near-month delivery fell 4% to $109.87 per barrel. The most actively traded contract had closed at a near four-year high on Monday after Iran launched attacks on a key oil terminal in the UAE and vessels in the Strait of Hormuz. However, the U.S. Secretary of Defense downplayed the impact of these attacks on Tuesday, stating that a four-week ceasefire agreement with Tehran remains in effect. “It appears there hasn’t been a significant escalation, and the market is breathing a sigh of relief,” commented Bill Nosey, Senior Investment Director at Bank of America Asset Management Group. Although hostilities in the Middle East appeared to ease on Tuesday, the conflict continues to have a notable influence on future U.S. economic indicators and Federal Reserve interest rate decisions, he added. For instance, a full and secure reopening of the Strait of Hormuz would temper expectations for rising inflation and lower the yield on the 10-year U.S. Treasury note. “Our baseline assumption is that we are likely to see this volatility persist,” Nosey said.
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