SP 500 index today: Tech Giants Bounce Back After AI Disruption

SP 500 index today: the S&P 500 is approaching its all-time high, reflecting renewed investor confidence in the technology sector.

The largest technology companies in the U.S. are navigating significant challenges posed by China's AI advancements, particularly from the emerging player DeepSeek. Despite the disruptions caused by lower-cost, highly efficient AI startups, major tech firms have managed to meet expectations, as evidenced by their market capitalizations propelling the S&P 500 to new highs.

Strong Earnings Boost the S&P 500

This week, companies like Apple Inc. and Meta Platforms Inc. reported positive earnings results, contributing to the upward momentum of the S&P 500. While the so-called “Magnificent Seven” — including Microsoft Corp., Amazon.com Inc., Alphabet Inc., and Tesla Inc. — experienced declines, they continue to maintain strong shareholder support among "Big Board" companies.

The Magnificent Seven’s Role

The Magnificent Seven have been instrumental in the S&P 500's growth over the past two years, despite a slowdown in profit growth and relatively high stock valuations. As a result, investors are increasingly looking beyond these major players to the remaining 493 companies in the index, anticipating that they might outperform. Earnings reports from both tech giants and the broader market have largely been positive during this earnings season.

Adam Sarhan, CEO of 50 Park Investments, noted that optimism surrounding earnings is at an all-time high, stating, “Fundamentals remain intact,” as the market continues to rise.

Q4 Profit Growth Projections

The tech sector is expected to show robust performance, with anticipated profit growth for Big Tech of 26% in Q4, surpassing initial forecasts of 22%. However, this marks a deceleration in growth for the fourth consecutive quarter, still outpacing the broader S&P 500’s expected growth of 10%.

Meta CEO Mark Zuckerberg reassured investors regarding his company's AI strategy, even emphasizing cost-effective approaches to AI infrastructure. This positive outlook was reflected in Meta's stock, which saw a 6.4% increase this week, marking its longest consecutive gain in nearly a decade.

Mixed Results for Major Players

Not all news was positive, however. Microsoft shares fell 6.5% after reporting slower-than-expected growth in its cloud computing division. The company faces challenges in scaling its AI infrastructure to meet rising demand. Despite these setbacks, both Meta and Microsoft executives have committed to ongoing investment in AI.

DeepSeek's Challenge and Market Pressures

The emergence of DeepSeek, coupled with disappointing earnings from AI infrastructure stocks, has created headwinds for the sector. Shares of Nvidia Corp., a key player in AI infrastructure, plummeted 16%, wiping out over $500 billion in market capitalization. Other semiconductor manufacturers like Broadcom Inc. and Micron Technology Inc. also reported declines.

Sarhan indicated that he has sold some AI infrastructure stocks due to the increased risks posed by DeepSeek, noting that current speculation could lead to decreased demand for high-end chips.

Dave Mazza, CEO of Roundhill Investments, highlighted that DeepSeek's rise, combined with slowing earnings growth, is intensifying pressure on tech giants to deliver returns on their AI investments, especially given their elevated valuations. The price-to-earnings ratio for the Magnificent Seven has now reached 31, significantly higher than the 20 recorded at the end of 2022, and notably above the S&P 500’s multiple of 22.

Conclusion

As tech giants confront the challenges brought on by emerging AI competitors like DeepSeek, their ability to adapt and maintain strong earnings will be crucial. While the S&P 500 approaches new highs, the tech sector's performance remains under scrutiny as investors look for sustainable growth amid evolving market dynamics.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.