Key Points
Artificial intelligence (AI) stocks have supercharged the S&P 500 over the past three calendar years, leading the index to multiple record highs. But periodically, these high-growth players have faced headwinds that have weighed on their performance. General concerns about the geopolitical and economic backdrop earlier in the year pushed investors to rotate out of some of the top-performing AI players and into other industries viewed as “safer” — for example, some investors chose to invest in pharmaceutical companies, businesses that generally deliver a certain level of revenue stability due to the essential nature of their products.
Investors also worried about the high valuations of certain AI stocks after double- and triple-digit stock price gains in recent years. Valuations have since come down, and in many cases, they’ve reached interesting levels.
This decline in valuation, ongoing strong demand for AI products and services, and an improving geopolitical setting boosted investor optimism in the second quarter — and AI stocks picked up positive momentum. The S&P 500 finished the quarter with a nearly 15% gain for its best quarterly performance in six years.
What’s next for AI stocks? Here are my top three predictions for the second half.
1. Nvidia will see a burst of growth
Nvidia (NASDAQ: NVDA) may be the biggest success story of the AI boom so far. The company is the leading designer of the graphics processing units (GPUs) that are crucial for essential tasks like the training of models. As a result of this dominance, Nvidia has delivered quarter after quarter of growth, with earnings reaching record high levels.
The stock also has soared, but in the first half, Nvidia’s performance was lackluster with a gain of only 7%.
My prediction is we’ll see a burst of growth from Nvidia stock in the second half of the year, and here’s why. The company is launching its latest update, the Vera Rubin platform, and this marks its entrance into what could be a very important market: the $200 billion central processing unit (CPU) market. CPUs are key chips for the era of agentic AI, and Nvidia is aiming for leadership in this type of chip. The company already predicts almost $20 billion in stand-alone CPU sales for this year — and this is just the start of its CPU story.
2. SpaceX stock may stick close to Earth
Space Exploration Technologies (NASDAQ: SPCX) completed the biggest initial public offering ever in the first half of the year. The Elon Musk-led company saw its stock price soar nearly 20% from its offer price during the first day of trading.
But I predict SpaceX stock won’t rocket much higher in the second half, and instead, will stay closer to Earth. Why? Investors have been excited about SpaceX’s ambitious goals — such as developing data centers in space — but the company must invest heavily to potentially reach such goals. This investment last year brought SpaceX to a loss of $4.9 billion. It’s very likely that in upcoming earnings reports, we’ll see similar trends as SpaceX invests in research and development. Investors may start to focus on this and the risky nature of the stock — and that could temper their enthusiasm.
And this may hold SpaceX back from major gains in the second half of the year.
3. Investors will continue to broaden their portfolios
As mentioned, investors earlier this year rotated out of the biggest AI winners and into other tech stocks that hadn’t experienced as much of a gain, as well as into different industries and types of stocks that offer elements of safety.
While I expect investors to return to certain top AI players like Nvidia that have seen their valuations decline, I also predict that they will continue the expansion into a greater number of stocks across industries — so, while AI stocks still may drive the S&P 500 higher, a wider group of stocks will also participate in the rally.
Why do I predict this? Investors are still approaching AI stocks with caution, monitoring the investment levels of tech companies in relation to the revenue opportunities. While they likely will continue to invest in proven and potential AI winners, I predict they will diversify in order to minimize risk in the second half and beyond.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
