Artificial Intelligence: Which Stocks Are Trending?

As earnings season unfolds, investors are keeping a close eye on the returns from investments in artificial intelligence (AI) within S&P 500 companies. Analysts expect slower earnings growth, with projected S&P 500 earnings rising by 5.3% compared to the previous year’s quarter, down from a 13.2% increase in the second quarter, according to a Reuters report. The technology and communication services sectors are expected to show the strongest year-over-year growth: technology earnings may increase by 15.4% and communication services by 12.3%. AI-related companies have been dominating earnings performance since last year and significantly contributing to substantial market gains. The S&P 500 has currently reached record highs and has risen by about 21% year-to-date, driven by strong performance in the tech and communications sectors. Howard Chan, CEO of Kurv Investment Management, emphasizes that analysts are closely examining how large companies are monetizing their AI initiatives. Successful companies are being substantially rewarded. A case in point is Meta, whose stock price surged following the announcement of strong revenue forecasts; this indicates that their digital advertising revenue is effectively funding AI investments. Conversely, spending by giants like Google on AI technologies has raised questions about their integration into existing business models. The S&P 500 is currently trading at 22.3 times the expected 12-month earnings, exceeding its long-term average of 15.7. Many investors hope that this quarter’s earnings report will justify the high stock valuations. Solita Marcelli from UBS Global Wealth Management expressed confidence that the upcoming third-quarter results could trigger further gains, particularly since the semiconductor sector remains a key factor for AI investments. The ongoing discussion around Analog Devices shows that the firm has gained attention from Wall Street analysts, spurred by the continuing AI boom. Despite recent challenges, including a sell-off in the semiconductor sector, investment advisory firm Citi remains optimistic and has reaffirmed its buy recommendation for the stock. Citi forecasts a year-over-year revenue growth of 14% for semiconductor companies, despite hurdles and a period of inventory postponement.