AI Stocks Surge as Strong Earnings and Weak Jobs Report Fuel Market Rally

AI stocks came roaring back this week as investors worked through another wave of corporate earnings and a surprisingly weak July jobs report .

The major averages notched a second straight week of gains, with the Dow Jones Industrial Average and S & P 500 both touching record highs. The blue-chip index closed at a record Wednesday and finished the week up 3%, while the S & P 500 and the tech-heavy Nasdaq Composite gained 3.6% and 5.2%, respectively. The S & P closed at a record Friday. The Nasdaq is 1.5% below its June 2 all-time closing high.

Friday's weaker-than-expected jobs report helped fuel the week's gains by easing concerns that the Federal Reserve will need to raise interest rates at its September meeting. Nonfarm payrolls unexpectedly fell by 23,000 in July, prompting investors to dial back expectations for another rate hike and sending Treasury yields lower. Now, traders are pricing in a 55% probability that the Fed holds rates unchanged at its September meeting, up from 45% on Thursday, according to the CME FedWatch tool . Here's a closer look at what drove the market this week.

The AI trade finds its footing After spending much of July under heavy pressure, semiconductor and data center stocks staged an impressive rebound this week. The recovery gained momentum after last week's collapse of Situational Awareness, the highly leveraged hedge fund founded by former OpenAI researcher Leopold Aschenbrenner. As we discussed throughout last week, the fund's forced unwinding triggered indiscriminate selling across AI infrastructure names, pushing many fundamentally strong companies well below where they should have been trading.

Jim called the liquidation a " clearing event " for the AI trade because it removed one of the market's biggest overhangs . With much of that forced selling now behind us, earnings and business fundamentals have once again become the primary drivers of stock performance. The rebound was evident across our portfolio, with Corning finishing as our best-performing stock of the week.

The strength extended across the chip sector, with the iShares Semiconductor ETF (SOXX) jumping 7.6% for the week, more than double the 30-stock Dow's 3% gain. The group gave back some gains on Thursday after Sandisk and Western Digital delivered guidance that failed to excite investors despite otherwise solid quarterly results. We view those reactions as company-specific rather than a sign that demand across the AI infrastructure buildout is weakening.

That conviction is why we added Micron to the Bullpen. Memory-chip maker Micron has already bounced sharply from its July 30 lows, but remains roughly 28% below its June 25 record close of $1,213.56.

SpaceX bets big on Nvidia Shares of SpaceX fell 13% Wednesday after the company reported better-than-expected revenue and earnings, but announced second-quarter capital expenditures of $18.4 billion, well above expectations. The stock recovered later in the week, finishing up 23%, after successfully navigating its first IPO lockup expiration.

Jim remains focused on the long term for SpaceX. He expects some near-term volatility as lockup shares hit the market but said it's the kind of stock you give to your kids . On the earnings call, Elon Musk announced that SpaceX will build its AI infrastructure " exclusively on Nvidia " because it believes the company's Vera Rubin architecture is "the best AI computer."

We think the endorsement reinforced the chipmaker's position as the leading supplier of AI infrastructure, even as several hyperscalers continue investing in their own custom chips. Nvidia ended the week more than 11% higher, its best weekly performance in over a year.

Although Musk's decision gave Nvidia a much-needed boost, AMD shares slipped 7%, despite the chipmaker posting solid quarterly results. Investors often treat Nvidia and AMD as if one company's success must come at the other's expense, but Jim argued demand for AI infrastructure remains robust enough for multiple winners . As enterprises race to secure computing capacity, he thinks Nvidia, AMD, and Intel can all continue benefiting from the AI buildout.

Portfolio updates We stayed busy in the portfolio this week, continuing to reposition toward our highest-conviction opportunities. We bought more shares of Corning on Tuesday after upgrading the stock to a buy-equivalent 1 last week. We viewed last week's forced selling across AI infrastructure names as an opportunity to add to a company whose growth should accelerate through the end of the decade, with restrictions on Chinese optical components providing another tailwind .

We also added to our Intel position on Wednesday, taking advantage of similar weakness caused by the unwind. The chipmaker remains one of our favorite ways to invest in the AI buildout. In healthcare, we used proceeds from our Dover sale to add to our Johnson & Johnson position on Monday, viewing recent weakness as an overreaction to an accounting adjustment tied to two acquisitions rather than any change in the underlying business.

The Dover sale was part of our decision to wind down the position following its mixed quarter . The overarching idea is to prune positions when we think our capital can generate better returns elsewhere. We also exited Honeywell Aerospace on Thursday. Our original thesis centered on a clean execution story following the spin-off, but management's first standalone earnings report weakened our conviction after it lowered guidance because of ongoing supply chain execution issues.

While we are still bullish on cybersecurity for the long term, we trimmed CrowdStrike and Palo Alto Networks on Wednesday. Both reached record highs and approached our price targets, so we wanted to lock in gains of roughly 146.5% and 172% in CrowdStrike and Palo Alto, respectively.