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Luke Kawa

The AI trade roars back after its worst week since April tariff announcements

The AI trade is roaring back after getting speed checked last week.

Baskets of US AI beneficiaries compiled by Morgan Stanley and Bank of America, which just suffered their worst week since the Rose Garden tariffs announcement, are up more than 3.5% in early trading to lead a broad-based market recovery amid optimism that the government shutdown will soon be over.

The likes of Palantir Technologies (which tumbled despite reporting strong results), Western Digital, and Seagate Technology Holdings are all up more than 4.5% as of 10:45 a.m. ET.

Semiconductor stocks are also rallying strongly after Nvidia CEO Jensen Huang asked his counterpart at TSMC to boost chip output.

“While the bears will continue to yell ‘AI Bubble’ from their hibernation caves we continue to point to this tech cap-ex supercycle that is driving this 4th Industrial Revolution into the next few years,” Wedbush Securities analyst Dan Ives wrote. “This is our focus and along with our AI use case work in the field is driving trillions of spending over the next few years and thus will keep this tech bull market alive for at least another 2 years in our view.”

Bank of America argues (convincingly) that last week’s retreat in the cohort had little to do with any industry-specific fundamental news.

“The pervasive skepticism re AI capex is understandable but likely a contrarian positive, helping minimize overcrowding,” Bank of America analyst Vivek Arya wrote in a note reaffirming his conviction on his preferred data center and semicap stocks. “Yes, large-cap AI semis have been volatile (down 7-8% on average last week) but we argue that was driven by (correctable) macro factors (US govt. shutdown, weak jobs data, tariff turmoil, misstated OpenAI comments) rather than any negative datapoint about the AI spending cycle.”

Further bolstering that argument, 22V Research flagged how earnings expectations are improving much more rapidly for AI-linked firms than the S&P 500 at large.

“AI usage and AI related fundamentals are unusually strong,” wrote Dennis DeBusschere, chief market strategist at 22V Research. “In 3Q, AI earnings growth rate has been ~3x that of other S&P names.”

22V Research earnings trends

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Server stocks are rallying as Dell, Super Micro Computer, and Hewlett Packard Enterprise ride the momentum of Hong Kong-based Lenovo. The PC maker’s stock rose 19% on Friday, hitting an all-time high, on record Q4 earnings.

Powering the positive earnings report was the company’s AI-related revenue, which grew 84% in the fourth quarter and now makes up over a third of total revenue. Investors seem to think the increased demand for servers could have trickle-down effects for other companies.

“The company’s results and commentary reinforced the outlook for strong AI-infrastructure demand while indicating resilient broader traditional server and storage spending,” wrote Woo Jin Ho, a senior technology analyst at Bloomberg Intelligence. “Lenovo’s $21 billion AI-server pipeline and remarks that demand is outpacing supply support Dell’s AI-demand momentum and point to robust orders.”

AI’s insatiable computing demand is reshaping the hardware industry and driving up server demand.

Dell will report first-quarter earnings on Thursday, May 28.

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Ross Stores surges as Q1 results beat expectations, full-year guidance raised

Ross shares are rising after the company delivered strong Q1 results, with sales topping Wall Street’s projections.

The stock soared 6.3% just after the open.

Key numbers:

  • Earnings per share of $2.02 vs. $1.47 year over year (estimate: $1.72).

  • Sales of $6.01 billion, up 21% year over year (estimate: $5.61 billion).

  • Comparable sales growth of 17% (estimate: 8.58%).

CEO Jim Conroy attributed the results to better traffic in stores. “Customer traffic was the primary driver of the strong sales trend as compelling merchandise assortments, higher customer acquisition and engagement from our ongoing marketing initiatives, and an improved in‑store experience are resonating with shoppers.”

The company also noted that transaction volume grew across all key demographics, including “income levels, ethnicities, and age groups, including younger customers.” Sales were also likely buoyed by standard seasonal tailwinds, including consumer spending from tax refunds.

Backed by the strong quarter, the company lifted its full-year targets. Ross now projects same-store sales growth of 6% to 7%, up from the prior forecast of 3% to 4%, topping Wall Street’s estimate of 4.64%. It boosted its annual EPS guidance to a range of $7.50 to $7.74, versus the prior outlook of $7.02 to $7.36.

Ross Stores has been one of the retail sector’s standout performers this year, rising around 20% year to date as of Thursday’s close.

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