The stock market's biggest story this week has been the sheer staying power of the artificial intelligence trade, which pushed the Nasdaq Composite to a record close even as other parts of the market showed more mixed signals.
On Monday, all three major indexes finished higher, with the Dow Jones Industrial Average climbing 366.19 points, or 0.7 percent, to close at 52,048.83, and the S&P 500 gaining 1.5 percent to 7,764.70. A renewed rally in chipmakers, including semiconductor makers like Micron Technology, drove the Nasdaq 100 to its first record since June, helped along by a drop in oil prices tied to hopes for diplomatic progress on the conflict involving Iran.
Tuesday brought a more split session: the Nasdaq Composite rose 0.5 percent to close at a record 27,244, its fourth straight positive session and a new all-time intraday high, while the S&P 500 finished essentially flat and the Dow fell about 0.4 percent, or roughly 185 points. The latest spark for the AI trade was strong investor reception for Meta's newly introduced Muse AI agent, which lifted shares of AI infrastructure companies broadly, extending a rally that has now been building for months on the back of heavy corporate spending on data centers, chips, and AI software.
The divergence between the tech-heavy Nasdaq and the more industrial, financial-heavy Dow reflects a market that remains highly selective. Money continues to flow into companies seen as direct beneficiaries of AI spending, from chipmakers to cloud and software firms, even as investors weigh the impact of the Federal Reserve's rate hike earlier this month and a still-unsettled geopolitical backdrop, including the situation in the Middle East, on the rest of the economy. Higher interest rates typically weigh more heavily on debt-reliant industrial and financial companies than on cash-rich technology giants, which helps explain some of the gap between the two indexes this week.
Taken together, the week's trading illustrates a market trying to hold two ideas at once: enthusiasm about the long-term promise of artificial intelligence, and caution about a Fed that has just signaled it may keep borrowing costs higher for longer than many had expected only months ago.
The broader backdrop is a multi-year boom in spending tied to artificial intelligence. Since 2023, large technology companies have poured record sums into data centers, specialized chips, and the software needed to build and run AI systems, and investors have rewarded companies seen as central to that build-out with outsized stock gains. Chipmakers like Micron have been among the biggest beneficiaries, since memory and processing chips are essential to training and running large AI models. Meta's move to introduce its own AI agent, called Muse, adds another data point to that story, showing that the AI competition among big technology firms remains intense even as the broader economic backdrop grows more uncertain.
Traders will be watching whether the AI-driven gains broaden out to more of the market, and whether easing oil prices and any further diplomatic progress on Iran continue to support sentiment.
Why is the Nasdaq hitting records while the Dow is falling?
The Nasdaq is more heavily weighted toward technology and AI-related companies, which have been the market's strongest performers, while the Dow includes more industrial and financial firms that have lagged.
What is driving the AI trade right now?
Investors have been encouraged by strong demand signals from chipmakers and by new AI products, including Meta's Muse AI agent, which boosted sentiment across AI infrastructure stocks.