AI trade frenzy appears to be driven by a ‘virtuous cycle’

Trader who sold short S&P500 — essentially betting it would go down — last month we were in for a rude surprise. The composite index ended the month 2.3% higher, defying the term “October Scare,” which was coined by market crashes that occurred during that month in 1929 and 1987.

of Nasdaq Composite had an even better month than the S&P 500. The tech-heavy index rose 4.7%, suggesting what helped prevent the ominous omen from coming. It’s the technology sector.

on friday, Amazon Shares rose 9.6% on strong growth in the company’s cloud computing division and what CEO Andy Jassy cited as “strong demand for AI and core infrastructure.” The news boosted other artificial intelligence stocks. Palantir and oracle Too.

The rise of AI in the market was not a one-day event. In October, NvidiaThe AI ​​powerhouse became the first company to reach a $5 trillion valuation. CEO Jensen Huang explains that the technology has formed a “virtuous cycle” where increased usage leads to increased investment, which in turn improves AI, leading to increased usage.

Indeed, in last week’s earnings calls, Big Tech companies announced a dizzying increase in capital spending, much of which is likely to go toward AI infrastructure.

In other words, the enthusiasm for AI so far is more like the sustained energy boost from fiber-rich pumpkin than the instant sugar rush (and subsequent crash) of a candy bar.