The AI trade gets a boost ahead of earnings seasons' final boss
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- AI infrastructure stocks are rebounding as CoreWeave and Nebius report strong revenue growth.
- That could bode well for Nvidia's upcoming Q2 earnings report.
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The AI infrastructure trade is back.
It was just a few weeks ago that investors started dumping the stocks left and right amid fears that hyperscalers were going to stop spending on the new technology. The PHLX Semiconductor Sector (SOX) had dropped 29% from June 22 to July 29.
But a few earnings reports on Tuesday are helping to inject some life back into the trade. Here were a couple of highlights:
- CoreWeave, a data center firm, saw year-over-year revenue growth of 112% in Q2, and a huge backlog of orders for its compute power. Its stock rose more than 19% on Wednesday.
- Nebius saw 450% revenue growth year-over-year as companies buy up its AI cloud storage. Its stock surged 32% on Wednesday.
So much for that impending spending dry spell that investors were sweating over.
On Wednesday morning, I spoke with Brad Neuman, the director of market strategy at asset management firm Alger, which invests in Nebius, Nvidia, and other AI infrastructure stocks. He said his firm continues to see the AI buildout as one of the biggest opportunities in the market.
"I think we're more worried about supply than demand," he said. "In other words, the ability to bring on data centers, build them, connect them to the grid, etc., rather than demand, which is, I think, growing very fast for user-end tokens."
The upbeat earnings reports come as hyperscalers like Microsoft and Amazon have started to show that they can monetize their investments in the AI buildout. Both reported robust growth in their cloud businesses in their Q2 earnings calls at the end of July. That realization of monetization prompted JPMorgan this week to up its 2026 S&P 500 price target to 8,000.
All of this provides a nice setup for the AI trade heading into Nvidia earnings, which will come on August 26. Nvidia's stock has struggled over the last few months, down 4.9% since mid-May.
If key Nvidia partners like CoreWeave and Nebius are seeing demand surge, and hyperscalers are starting to see returns on their AI spending, then Nvidia could be positioned for a strong quarter.
Nvidia is the largest company on the planet with a $5.4 trillion market cap and a bellwether for the broader AI trade.
And when Nvidia does well, the broader market tends to follow suit.
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