🤖 AI Stocks: Is the Rally Running Out of Steam?

At GLHR Investing, we’re diving into the artificial intelligence (AI) market, a $235 billion juggernaut in 2024 projected to soar to $631 billion by 2028, to assess whether the red-hot rally in AI stocks is fizzling out. With the S&P 500 (SPY) at $513.88, down 4.8% year-to-date as of May 23, 2025, and Trump’s tariffs, tax cuts, and trade tensions shaking markets, AI stocks like NVIDIA (NVDA) and Microsoft (MSFT) face scrutiny after stellar gains. Are these stocks still a buy, or is the momentum fading? Here’s a comprehensive analysis of the AI market in 2025, Trump’s policy impacts, key stock performances, and what investors should do next in a volatile economy.

• AI Market Overview: 2025 Snapshot:
  • Market Size and Growth:
    • The global AI market reached $235 billion in 2024, with a projected 28% CAGR to $631 billion by 2028, driven by generative AI, cloud infrastructure, and enterprise adoption, per web data.
    • U.S. AI spending hit $80 billion in 2024, with 70% of companies adopting AI tools, per web data. Enterprise AI (e.g., Salesforce’s Agentforce) and data center investments fuel growth, per X post (@mrguruvan).
  • Key Trends:
    • Generative AI: ChatGPT and DeepSeek’s models drive adoption, with 24% of workers using AI tools, though slow workforce uptake remains a hurdle, per X post (@mrguruvan).
    • Cloud and Chips: NVIDIA’s GPUs dominate (90% data center market), while CoreWeave’s AI cloud platform grew revenue from $0 to $1.9 billion (2022–2024), per web data.
    • Enterprise Solutions: Salesforce and Palantir leverage AI for CRM and data analytics, boosting revenues 20–30%, per web data.
    • Regulatory Challenges: The EU AI Act and U.S. policy uncertainty (e.g., Trump’s export bans) pose risks, with 83% of leaders citing weak data infrastructure, per X post (@mrguruvan).
  • Economic Context:
    • Market Volatility: SPY’s 15.6% YTD drop and May’s 0.87% decline (VIX ~35) reflect Trump’s tariffs and a 60% recession risk, per prior analyses. Tech-heavy Nasdaq fell ~0.8–1.2% in June’s first week, per X post (@iamJMinx).
    • Trump’s Policies: Tariffs (125% China, 25% Canada/Mexico, paused until July 9), “One, Big, Beautiful Bill” (OBBBA) tax cuts ($1,700/family), and immigration curbs (~500,000 net immigration) impact AI supply chains and spending, per prior analyses.
    • Inflation and Rates: 3% inflation (June at 3.5–4%) and Fed rates at 4.25–4.5% (no cuts expected) curb speculative AI investments, per web data. Deficit-driven yields (10-year at 4.28%) pressure valuations, per prior analyses.
• Is the AI Rally Running Out of Steam?:
  • Signs of Slowdown:
    • NVIDIA’s Pullback: NVDA, the AI chip leader, entered correction territory in Q2 2024 (-10%), with institutional investors (e.g., Arrowstreet Capital) reducing stakes, per web data. Trading volume on rallies dropped, signaling weak conviction, with a bearish MACD on monthly charts, per web data.
    • Valuation Concerns: NVDA’s P/E (~50) and Palantir’s (419) reflect overhyped valuations, with slowing growth (Palantir’s 29% in 2024 vs. 47% in 2020), per web data.
    • Institutional Exodus: Hedge funds hedged or sold NVDA in Q1 2025, with $57.7 billion traded on August 2024’s drop, suggesting a cooling AI bubble, per web data.
    • Tariff Risks: Trump’s 125% China tariffs and mineral export bans (May 30) threaten chip supply chains, raising costs 5–10% for NVDA, AMD, and TSLA, per X post (@ppt7sctv).
    • Market Concentration: The “Magnificent 7” (including NVDA, MSFT) drove 65% of S&P 500’s 2023 gains, but their dominance risks broader market weakness if AI falters, per web data.
  • Signs of Continued Momentum:
    • Strong Fundamentals: NVIDIA’s revenue tripled post-ChatGPT (2023–2024), with CEO Jensen Huang forecasting a $1 trillion data center market by 2028, per web data.
    • AI Adoption Growth: 70% of enterprises use AI, with Salesforce (22.7% upside) and AppLovin (21.7%) leveraging AI for revenue growth, per web data.
    • Broader AI Plays: CoreWeave’s $1.9 billion revenue and Pinterest’s AI-driven ad formats signal diversification beyond chips, per web data.
    • China’s Tech Rally: Despite U.S. tariffs, China’s AI stocks (e.g., Baidu) are undervalued, with potential to outperform globally, per web data.
    • Analyst Optimism: AI stocks like MSFT ($526 target) and NVDA ($175 target) retain “Buy” ratings, with long-term AI growth projected at 28% CAGR, per web data.
  • Market Sentiment:
    • X posts (@fundstrat, @danielisdizzy) highlight AI’s long-term potential (e.g., $500B AI accelerator market by 2028) but note short-term consolidation, with NVDA and PLTR “priced in,” per X posts.
    • The Fear & Greed Index (~45, neutral) and VIX (~20.6 in June) suggest cautious optimism, with investors hedging via gold (GLD, +3%) and staples, per X post (@kautiousCo).
• Trump’s Policy Impact on the AI Market:
  • Positive Impacts:
    • OBBBA Tax Cuts (May 22): Corporate tax relief (100% expensing, 23% small business deduction) boosts AI R&D spending, benefiting MSFT ($80B AI data centers) and startups (e.g., OpenAI, $300B valuation), per web data and X post (@mrguruvan).
    • Deregulation Signals: Repealing AI oversight orders (e.g., 2023 executive order, revoked January 2025) supports innovation, lifting stocks like Palantir (PLTR, +62% potential), per web data.
    • Immigration Curbs: Reduced H-1B visas (~500,000 net immigration) prioritize domestic AI talent, benefiting U.S. firms like CoreWeave, per web data.
  • Negative Impacts:
    • Tariffs (April–June): 125% China tariffs and 50% steel tariffs (June 4) raise chip and hardware costs, impacting NVDA, AMD, and TSLA, per X post (@ppt7sctv). China’s mineral export suspension (May 30) adds supply chain risks, per prior analyses.
    • Deficit Concerns: OBBBA’s $3.2–$4.1 trillion deficit raises yields (10-year at 4.28%), pressuring high P/E AI stocks (e.g., NVDA, TSLA), per web data and prior analyses.
    • Trade Tensions: The May 28 IEEPA tariff ruling and ongoing appeal, plus U.S.-China disputes, fueled a 0.59% SPY futures drop on June 2, hitting tech, per X post (@ppt7sctv).
  • Market Reaction: Tariffs triggered SPY drops (12.1% intra-month April, 0.5–1% June 1–6), with tech underperforming, but tax cut optimism and trade pauses (e.g., EU to July 9) supported brief rallies (~1% May 9), per prior analyses.
• Top 10 AI Stocks: Performance and Outlook:
  • NVIDIA Corporation (NVDA):
    • Price: ~$94, Yield: 0.1%, YTD: Up 140% (2024 peak), but -10% correction Q2 2024, per web data.
    • Why Notable: 90% data center GPU market share, $175 target, “Buy” rating, per web data.
    • Outlook: Tariff costs and institutional sell-offs signal short-term risk, but $1T data center forecast supports long-term growth, per web data.
  • Microsoft Corporation (MSFT):
    • Price: ~$360, Yield: 0.8%, YTD: Up ~10%, per web data.
    • Why Notable: $14B OpenAI investment, $80B AI data center spend, $526 target, “Buy” rating, per web data.
    • Outlook: Stable growth (3.04 financial health score), but high investment costs worry some, per web data.
  • Salesforce, Inc. (CRM):
    • Price: ~$300, Yield: 0.5%, YTD: Up ~15%, per web data.
    • Why Notable: AI-driven CRM (Agentforce), 25.2% upside, “Strong Buy” from 48 analysts, per web data.
    • Outlook: Strong fundamentals (3.04 health score) and enterprise adoption support gains, per web data.
  • AppLovin Corporation (APP):
    • Price: ~$350, Yield: 0%, YTD: Up ~30%, per web data.
    • Why Notable: AXON AI ad platform, 21.7% upside, “Buy” from 21/27 analysts, per web data.
    • Outlook: Mobile app growth and high margins drive upside, but cyclical ad risks loom, per web data.
  • Pinterest, Inc. (PINS):
    • Price: ~$40, Yield: 0%, YTD: Flat, per web data.
    • Why Notable: AI-driven ad formats, 22.7% upside, “Buy” rating, per web data.
    • Outlook: Rebound potential from undervaluation (3.48 health score), but tariff-sensitive, per web data.
  • CoreWeave, Inc. (CWVW):
    • Price: ~$50 (IPO March 2025), Yield: 0%, YTD: N/A, per web data.
    • Why Notable: AI cloud platform, $1.9B revenue (2024), backed by NVDA, MSFT, per web data.
    • Outlook: High growth but risky (62% MSFT revenue reliance), per web data.
  • Palantir Technologies Inc. (PLTR):
    • Price: ~$80, Yield: 0%, YTD: Down 36% from $125 peak (February), per web data.
    • Why Notable: AI data analytics, 62% upside ($35 target), but P/E 419 signals overvaluation, per web data.
    • Outlook: Growth slowing (29% in 2024), high stock-based compensation risks, per web data.
  • Advanced Micro Devices, Inc. (AMD):
    • Price: ~$150, Yield: 0%, YTD: Up ~5%, per web data.
    • Why Notable: AI accelerators, $500B market by 2028, 27x forward P/E, per X post (@danielisdizzy).
    • Outlook: Undervalued vs. NVDA, but tariff-sensitive chip supply chains, per web data.
  • Arm Holdings plc (ARM):
    • Price: ~$120, Yield: 0%, YTD: Up ~20%, per web data.
    • Why Notable: Power-efficient AI chip designs, surging license revenue, per web data.
    • Outlook: Strong AI demand, but competitive pressure from Intel/AMD, per web data.
  • SoundHound AI, Inc. (SOUN):
    • Price: ~$10, Yield: 0%, YTD: Up ~20% at 2024 peak, per web data.
    • Why Notable: Voice AI for customer engagement, deal with Airmeez boosts use cases, per web data.
    • Outlook: Niche growth but volatile, with tariff risks on tech hardware, per web data.
• Investor Strategy:
  • Is the Rally Over?:
    • Short-Term Outlook: The AI rally shows signs of cooling, with NVDA’s correction (-10%) and Palantir’s high P/E (419) signaling overvaluation, per web data. Tariffs (125% China) and rising yields (4.28%) from OBBBA deficits add pressure, with a 0.5–1% SPY drop in June’s first week, per prior analyses.
    • Long-Term Outlook: AI’s 28% CAGR to 2028 and 70% enterprise adoption ensure sustained growth, with diversified plays (CRM, PINS) less exposed to tariff risks, per web data. OBBBA tax cuts and deregulation support R&D, per web data.
  • Stocks to Buy:
    • Salesforce (CRM): ~$300, 0.5% yield. Strong AI growth (25.2% upside), buy on dips near $280 for enterprise exposure, targeting $350–$370, per web data.
    • Advanced Micro Devices (AMD): ~$150, 0% yield. Undervalued (27x P/E), buy on dips near $140 for ~20% upside by 2026, per X post (@danielisdizzy).
    • Pinterest (Inc. (PINS): ~$40, 0% yield. Rebound potential (22.7% upside), buy on dips near $38 for $45–$50 target, per prior analyses.
  • Stocks to Hold:
    • NVIDIA (NVDA): ~$94, 0.1% yield. Overvalued but hold for long-term AI leadership, targeting $150–$175 by 2026, per prior analyses.
    • Microsoft (MSFT): ~$360, 0.8% yield. Stable AI investments, hold for ~15% upside ($400–$526), but monitor spending risks, per web data.
    • Palantir (PLTR): ~$80, 0% yield. High P/E risks declines, hold for potential $100–$125 recovery if growth reaccelerates, per web data.
  • Stocks to Watch:
    • CoreWeave (CWVW): ~$50, monitor post-IPO volatility for entry points, per web data.
    • AppLovin (APP): ~$350, high growth but cyclical ad risks, watch for dips near $320, per web data.
    • Arm (ARM): ~$120, competitive pressure but AI chip demand, monitor near $110, per web data.
    • SoundHound (SOUN): ~$10, niche voice AI, watch for $8–$9 entry, per web data.
  • ETFs:
    • Global X Robotics & Artificial Intelligence ETF (BOTZ): 0% yield, up since October 2024, offers diversified AI exposure, per web data.
    • ARK Autonomous Technology & Robotics ETF (ARKQ): 0% yield, includes TSLA and PLTR, suitable for risk-tolerant investors, per web data.
  • Portfolio Allocation:
    • Allocate 5–10% to AI stocks, balancing growth (CRM, AMD) with established players (MSFT), per prior analyses.
    • Hedge with 3–5% in gold (GLD, +3%) or utilities (XLU, +1%) to counter tariff-driven volatility and recession risks, per web data.
  • Investment Timing:
    • Buy on SPY dips near $490–$500, leveraging market pullbacks, per Trade That Swing.
    • Dollar-cost average to manage VIX spikes (~20–25), per Schwab.
  • Key Catalysts to Monitor:
    • July 9 Tariff Deadline: Reinstatement of 125% China tariffs could raise tech costs 10–20%, impacting NVDA, AMD, per web data.
    • U.S.-China/EU Trade Talks: Resolution could lift SPY 3–5%, easing AI supply chain fears, per web data.
    • June 17–18 FOMC Meeting: Signals on rates (4.25–4.5%) will influence AI valuations, per web data.
    • Q2 Earnings (July 2025): NVDA, MSFT, and CRM reports will clarify AI revenue growth, per web data.
    • OBBBA Senate Progress: Deficit concerns ($3.2–$4.1T) could push yields to 4.5–5%, per web data.
    • AI Adoption Metrics: Track enterprise AI uptake (70%) and regulatory shifts (e.g., EU AI Act), per X post (@mrguruvan).
  • Risks:
    • Tariff Escalation: Reinstatement of 125% China tariffs (July 9) could increase chip and hardware costs 10–20%, hitting NVDA, AMD, and TSLA, per J.P. Morgan.
    • Recession Risk: A 60% recession probability may curb corporate AI spending, impacting PLTR and SOUN, per prior analyses.
    • Yield Pressure: Deficit-driven yield spikes (4.5–5% from OBBBA) could depress high P/E AI stocks like NVDA and PLTR, per web data.
    • Regulatory Uncertainty: U.S. export bans and EU AI Act enforcement could limit global AI growth, per web data.
    • Market Concentration: Overreliance on “Magnificent 7” (65% of 2023 SPY gains) risks broader market weakness if AI falters, per web data.
• Conclusion: Navigating the AI Rally:
  • The AI stock rally, while showing cracks—NVDA’s correction, PLTR’s P/E bloat, and tariff pressures—retains long-term fuel with a 28% CAGR to 2028 and 70% enterprise adoption. Trump’s OBBBA tax cuts and deregulation bolster R&D, but tariffs and deficits pose near-term hurdles, with SPY’s 15.6% YTD drop signaling caution. Investors should balance growth bets (CRM, AMD) with stable holds (MSFT, NVDA), hedging with defensives (GLD, XLU) to weather volatility. The rally isn’t over, but it’s hitting a speed bump—strategic timing and diversification are key to staying ahead.
• Why It Matters: The $235 billion AI market in 2025, set to triple by 2028, remains a cornerstone of tech-driven wealth creation, but Trump’s policies and economic risks (60% recession, 4% inflation) test its rally. With NVDA and MSFT leading but vulnerable, diversified picks like Salesforce and AMD offer safer entry points. In a volatile SPY (-15.6% YTD), GLHR Investing is your guide to navigating the AI wave, securing your portfolio for 2025’s high-stakes market.

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Disclaimer: GLHR Investing is not a financial adviser; please consult one.