Published - May 30th, 2023 @ 3:53 PM (GMT+2 )

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Market Dichotomy: Nasdaq 100 Soars Amid AI Interest

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As the fervor around artificial intelligence (AI) heightens, the stock market is experiencing an unusual dichotomy. Last week, the Nasdaq 100 Index, composed of the largest tech stocks on Nasdaq, soared by more than 3%, while the Dow Jones Industrial Index remained in negative territory. This divergence, only the fifth since the dot-com bubble burst 20 years ago, demonstrates a marked shift in investor behavior.

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AI Investments Surge Amid Market Uncertainty

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Looking deeper into the market dynamics, it's clear that on Thursday and Friday, more NYSE-listed stocks hit new 52-week lows than highs, yet the Nasdaq 100 still managed to climb over 2%. These phenomena typically emerge during periods of market uncertainty, such as bear and early-stage bull markets.

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'Magnificent Seven': The Tech Titans Dominating Market Gains

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The broader narrative suggests that investors are diverting their capital from the overall market and into the booming AI sector. This trend concentrates market gains into a small number of companies, aptly named the 'Magnificent Seven' by Bank of America strategist Michael Hartnett. This elite group includes tech giants Apple (NASDAQ:AAPL) , Alphabet (NASDAQ:GOOGL) , Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) , Meta (NASDAQ:META) , Tesla (NASDAQ:TSLA), and Nvidia (NASDAQ: NVDA).

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Record Market Valuation Growth for 'Magnificent Seven'

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In 2023 alone, these seven leading Nasdaq 100 components have witnessed a staggering $3.35 trillion increase, while the remaining 93 companies managed a comparatively modest gain of $635 billion. This translates into the 'Magnificent Seven' responsible for 84% of the Nasdaq 100's $4 trillion growth in market valuation this year. Notably, Apple and Microsoft increased in value more than all the bottom 93 stocks combined.

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Surge in AI Sector: Other Companies Riding the Wave

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The dominance of these seven tech behemoths doesn't mean other companies aren't making strides. Several different software and chip companies are reaping substantial returns, riding on the AI wave. For instance, chipmaker Marvell Tech surged by 65% this month alone, with the company expecting to at least double its AI revenue in fiscal 2024. In addition, cloud-based security firm Zscaler is up 45%, and American Micro Devices has outperformed Nvidia's impressive May return by gaining 42% this month.

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Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta Platforms, and Tesla have enjoyed the most significant gains in market cap this year. Following these, the increase in valuation drops sharply.
However, retail names in the consumer discretionary and staples sector have taken a hit in May, reversing previous areas of strength. Amidst real-world concerns like the US debt ceiling and the Federal Reserve's next move, markets have focused on AI.

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Strategists at Citi recently noted that the US markets are driven by the AI theme, which will likely increase rates sensitivity. This means the AI trade is gradually becoming synonymous with the Fed trade. Hartnett from BofA stated, "No conviction in macro narrative of 2023 means big conviction in new micro narrative of AI."

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The information on mexem.com is for general informational purposes only. It should not be regarded as investment advice. Investing in stocks involves risk. A stock's past performance is not a reliable indicator of its future performance. Always consult a financial advisor or trusted sources before making any investment decisions.

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