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Weight of Evidence Points Higher for US Stocks, Led by AI
Interest rates near multi-decade highs, rising geopolitical tensions, persistently elevated inflation, a hawkish Fed, and constant warnings about an AI bubble, and yet volatility remains contained while the leading stock indexes sit just below record highs. How can all of this be true?
A strong economy, rising productivity, the AI infrastructure boom, federal deficit spending, and still-supportive financial conditions continue to keep the market very buoyant.
“As long as the US consumer keeps spending and the AI build-out keeps happening, things continue to motor along. And while the tail risks keep growing—geopolitical instability, domestic political questions, the trade war, inflation, energy prices—the market doesn’t seem to care as long as those 2 things of consumer spending and AI build-out continue forward, the underlying economy and, therefore, the markets keep powering forward.” — Apollo Global Management Co-President Scott Kleinman
“Economy is strong. Not more to say. I mean I can’t explain why the economy is so strong, but it is very strong on all fronts.” — M&T Bank CEO René Jones
“...we’re not seeing any deterioration. It’s continued strength. It may not be at the highest level that it’s been over the last 12 months, but we do see continued strength.” — Bank of America Co-President Jim DeMare
Quotes viaThe Transcriptnewsletter.
That strength has not been evenly distributed across the market, however. Over the last two months, AI-related stocks have increasingly carried the major indexes while many other areas have weakened.
Market breadth has been notably poor. The equal-weight S&P 500, Dow Industrials, and Russell 2000 have all significantly underperformed the capitalization-weighted S&P 500 and Nasdaq 100, with the latter already pushing to new highs.
Image Source: TradingView
At the same time, there are signs that sentiment and breadth may be approaching a bottom. The percentage of stocks trading below their 50-day and 200-day moving averages is nearing levels last seen around the March lows. That does not guarantee an immediate rebound, but it increasingly suggests the market may be closer to a washout than the beginning of another major leg lower.
Image Source: MacroMicro
That said, predicting the market’s direction over the next several days or weeks is difficult and, ultimately, not particularly necessary. What is much clearer is where leadership remains concentrated.
AI infrastructure continues to stand out. Most notably, Nvidia ((NVDA - Free Report) ), Bloom Energy ((BE - Free Report) ), and Amphenol ((APH - Free Report) ) are top-ranked companies positioned in critical, supply-constrained areas of the AI infrastructure buildout. With strong fundamental momentum and continued demand for their products, all three appear well positioned to lead the next leg of the market higher.
Image Source: Zacks Investment Research
Bloom Energy Shares Still Appealing Despite Massive Appreciation
Bloom Energy stands out to me as one of the most compelling names in the AI infrastructure trade.
Chips, AI models, and data center capacity are all supply constrained, but power may be the most difficult bottleneck to solve. Semiconductor capacity can expand, and new data centers can be built, but adding large amounts of reliable power infrastructure is typically slower and more complicated. That puts Bloom in an exceptionally strong position as AI-driven electricity demand continues to accelerate.
The earnings outlook reflects that opportunity. Current year profit estimates have risen 28.6% over the last 60 days, while next-year estimates are up 14.8%, giving the stock a Zacks Rank #1 (Strong Buy) rating. Sales are expected to surge 104% this year and another 57% next year, with earnings projected to climb 255% and 81%, respectively.
Some investors may be hesitant after the stock’s enormous two-year run, particularly with shares trading around 100x forward earnings. But the underlying growth outlook remains extremely strong.
The technical setup also provides a useful framework. BE shares are down sharply today, but remain within the trading range established over the last month. A breakout above that range would likely signal the start of another leg higher, while a decisive loss of support would be a reason to become more cautious.
Image Source: TradingView
Nvidia Stock on the Verge of Record Highs
Nvidia stock has been relatively tame compared with the explosive gains it delivered during the early stages of the AI boom. That is understandable given its now-massive $5.5 trillion market capitalization, but it does not mean the upside opportunity has disappeared.
Analysts continue to raise their earnings forecasts, with next year’s estimate up 22% and revisions moving higher almost unanimously across other periods as well. Sales are expected to climb 88% this year and another 65.5% next year, while earnings are projected to rise 94% and 66%, respectively.
Despite that growth, Nvidia trades at just 24.3x forward earnings, roughly in line with the broader market despite carrying substantially stronger growth expectations.
The technical setup also looks constructive. The price action is not especially clean, but NVDA is clearly pressing against record highs, which remain the key resistance level. The trading range established over the last several months puts support near $210.
Investors should watch that range closely. A decisive breakout to new highs would likely signal another leg higher, while a break below support would weaken the setup.
Image Source: TradingView
Amphenol Stock Offers Growth at a Reasonable Price
Amphenol is a core pick-and-shovel play on the AI infrastructure buildout, supplying high-speed copper and fiber-optic interconnects, power distribution components, and connectors used across AI servers and data center systems. It also offers an attractive GARP-style setup, supported by strong growth forecasts and aggressive upward earnings revisions.
APH carries a Zacks Rank #1 (Strong Buy), backed by nearly unanimous analyst upgrades across timeframes. Current-year earnings estimates have risen 9% over the last 60 days, while next-year estimates are up 12.4%.
Revenue is projected to climb 54% this year and another 18% next year, while EPS is expected to grow 59.3% and 23%, respectively.
Despite that growth, Amphenol trades at a forward earnings multiple of 31.6x. The broader industry backdrop is also strong, with the Electronics – Connectors industry currently ranked in the Top 2% of all Zacks industries, at 6 out of 247.
The technical setup may be the cleanest of the three stocks. APH shares have been coiling in a tightening bull flag, with clearly defined support and resistance levels. A breakout in either direction should provide a strong signal on the next move, though the fundamental and technical backdrop currently favors an upside resolution.
Image Source: TradingView
What’s Next for the Market and AI Stocks?
The market continues to face legitimate risks, but the weight of the evidence still points higher. Economic growth remains firm, AI investment continues to accelerate, and earnings estimates for the strongest companies are still moving higher.
Breadth could remain uneven in the near term, but that does not diminish the strength of the current leaders. As long as the fundamental backdrop holds, investors should continue to favor companies with strong earnings momentum, clear exposure to the AI infrastructure buildout, and constructive technical setups.
For now, Nvidia, Bloom Energy, and Amphenol check all three boxes.
View the Zacks #1 Rank List
Image: Shutterstock
Weight of Evidence Points Higher for US Stocks, Led by AI
Interest rates near multi-decade highs, rising geopolitical tensions, persistently elevated inflation, a hawkish Fed, and constant warnings about an AI bubble, and yet volatility remains contained while the leading stock indexes sit just below record highs. How can all of this be true?
A strong economy, rising productivity, the AI infrastructure boom, federal deficit spending, and still-supportive financial conditions continue to keep the market very buoyant.
“As long as the US consumer keeps spending and the AI build-out keeps happening, things continue to motor along. And while the tail risks keep growing—geopolitical instability, domestic political questions, the trade war, inflation, energy prices—the market doesn’t seem to care as long as those 2 things of consumer spending and AI build-out continue forward, the underlying economy and, therefore, the markets keep powering forward.” — Apollo Global Management Co-President Scott Kleinman
“Economy is strong. Not more to say. I mean I can’t explain why the economy is so strong, but it is very strong on all fronts.” — M&T Bank CEO René Jones
“...we’re not seeing any deterioration. It’s continued strength. It may not be at the highest level that it’s been over the last 12 months, but we do see continued strength.” — Bank of America Co-President Jim DeMare
Quotes via The Transcript newsletter.
That strength has not been evenly distributed across the market, however. Over the last two months, AI-related stocks have increasingly carried the major indexes while many other areas have weakened.
Market breadth has been notably poor. The equal-weight S&P 500, Dow Industrials, and Russell 2000 have all significantly underperformed the capitalization-weighted S&P 500 and Nasdaq 100, with the latter already pushing to new highs.
Image Source: TradingView
At the same time, there are signs that sentiment and breadth may be approaching a bottom. The percentage of stocks trading below their 50-day and 200-day moving averages is nearing levels last seen around the March lows. That does not guarantee an immediate rebound, but it increasingly suggests the market may be closer to a washout than the beginning of another major leg lower.
Image Source: MacroMicro
That said, predicting the market’s direction over the next several days or weeks is difficult and, ultimately, not particularly necessary. What is much clearer is where leadership remains concentrated.
AI infrastructure continues to stand out. Most notably, Nvidia ((NVDA - Free Report) ), Bloom Energy ((BE - Free Report) ), and Amphenol ((APH - Free Report) ) are top-ranked companies positioned in critical, supply-constrained areas of the AI infrastructure buildout. With strong fundamental momentum and continued demand for their products, all three appear well positioned to lead the next leg of the market higher.
Image Source: Zacks Investment Research
Bloom Energy Shares Still Appealing Despite Massive Appreciation
Bloom Energy stands out to me as one of the most compelling names in the AI infrastructure trade.
Chips, AI models, and data center capacity are all supply constrained, but power may be the most difficult bottleneck to solve. Semiconductor capacity can expand, and new data centers can be built, but adding large amounts of reliable power infrastructure is typically slower and more complicated. That puts Bloom in an exceptionally strong position as AI-driven electricity demand continues to accelerate.
The earnings outlook reflects that opportunity. Current year profit estimates have risen 28.6% over the last 60 days, while next-year estimates are up 14.8%, giving the stock a Zacks Rank #1 (Strong Buy) rating. Sales are expected to surge 104% this year and another 57% next year, with earnings projected to climb 255% and 81%, respectively.
Some investors may be hesitant after the stock’s enormous two-year run, particularly with shares trading around 100x forward earnings. But the underlying growth outlook remains extremely strong.
The technical setup also provides a useful framework. BE shares are down sharply today, but remain within the trading range established over the last month. A breakout above that range would likely signal the start of another leg higher, while a decisive loss of support would be a reason to become more cautious.
Image Source: TradingView
Nvidia Stock on the Verge of Record Highs
Nvidia stock has been relatively tame compared with the explosive gains it delivered during the early stages of the AI boom. That is understandable given its now-massive $5.5 trillion market capitalization, but it does not mean the upside opportunity has disappeared.
Analysts continue to raise their earnings forecasts, with next year’s estimate up 22% and revisions moving higher almost unanimously across other periods as well. Sales are expected to climb 88% this year and another 65.5% next year, while earnings are projected to rise 94% and 66%, respectively.
Despite that growth, Nvidia trades at just 24.3x forward earnings, roughly in line with the broader market despite carrying substantially stronger growth expectations.
The technical setup also looks constructive. The price action is not especially clean, but NVDA is clearly pressing against record highs, which remain the key resistance level. The trading range established over the last several months puts support near $210.
Investors should watch that range closely. A decisive breakout to new highs would likely signal another leg higher, while a break below support would weaken the setup.
Image Source: TradingView
Amphenol Stock Offers Growth at a Reasonable Price
Amphenol is a core pick-and-shovel play on the AI infrastructure buildout, supplying high-speed copper and fiber-optic interconnects, power distribution components, and connectors used across AI servers and data center systems. It also offers an attractive GARP-style setup, supported by strong growth forecasts and aggressive upward earnings revisions.
APH carries a Zacks Rank #1 (Strong Buy), backed by nearly unanimous analyst upgrades across timeframes. Current-year earnings estimates have risen 9% over the last 60 days, while next-year estimates are up 12.4%.
Revenue is projected to climb 54% this year and another 18% next year, while EPS is expected to grow 59.3% and 23%, respectively.
Despite that growth, Amphenol trades at a forward earnings multiple of 31.6x. The broader industry backdrop is also strong, with the Electronics – Connectors industry currently ranked in the Top 2% of all Zacks industries, at 6 out of 247.
The technical setup may be the cleanest of the three stocks. APH shares have been coiling in a tightening bull flag, with clearly defined support and resistance levels. A breakout in either direction should provide a strong signal on the next move, though the fundamental and technical backdrop currently favors an upside resolution.
Image Source: TradingView
What’s Next for the Market and AI Stocks?
The market continues to face legitimate risks, but the weight of the evidence still points higher. Economic growth remains firm, AI investment continues to accelerate, and earnings estimates for the strongest companies are still moving higher.
Breadth could remain uneven in the near term, but that does not diminish the strength of the current leaders. As long as the fundamental backdrop holds, investors should continue to favor companies with strong earnings momentum, clear exposure to the AI infrastructure buildout, and constructive technical setups.
For now, Nvidia, Bloom Energy, and Amphenol check all three boxes.