A leading JPMorgan internet analyst says the artificial intelligence trade still has room to run, with gains likely to cluster in mega-cap names and style leaders. Doug Anmuth, who covers large internet platforms, argued that investor interest in AI will keep pushing up shares tied to strong earnings quality and price momentum.
“The AI theme will continue to drive continued outperformance in Quality Growth, Momentum, & Mag 7 stocks,” Anmuth wrote.
The comment lands as markets weigh how far the AI surge can go. The so-called Magnificent Seven—Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla—have powered major indexes in recent years. Many of these firms are central to AI chips, cloud infrastructure, and new software features.
Why AI Is Steering Market Leaders
AI spending is flowing into two main areas: hardware that runs large models and software that turns those models into paid products. Chipmakers and cloud platforms are seeing large orders for data center upgrades. Software giants are rolling out AI assistants that can be bundled into existing suites.
Analysts say this mix favors firms with scale, cash, and distribution. These firms can fund high capital needs while cross-selling new AI tools. That helps earnings and keeps attention on so-called Quality Growth and Momentum factors. In recent quarters, earnings calls across mega-caps have featured plans for AI copilots, search upgrades, and ad tools that use machine learning to target more effectively.
The Magnificent Seven’s Outsized Role
Concentration in the biggest names has grown. By late 2023 and into 2024, the top tech-linked stocks made up a large share of the S&P 500’s weight and gains. Nvidia’s surge, tied to demand for AI accelerators, became a symbol of the trade. Microsoft and Alphabet increased cloud spending to meet AI workloads, while Meta and Amazon detailed new chips and services.
Supporters point to rising revenue tied to AI services and to steady upgrades to profit forecasts. Critics worry that performance is narrow and tied to a small group. Still, demand for compute has stayed firm, and backlogs for advanced chips have stretched across multiple quarters.
What Could Challenge the Thesis
There are risks. Valuations in mega-cap tech are high versus market averages. Any slowdown in AI adoption could spark sharp pullbacks. Regulation remains a wild card, with privacy, copyright, and competition questions still unsettled. Higher interest rates can also pressure long-duration growth stocks.
Supply constraints pose another test. If chip output or power availability limits data center growth, rollouts could slip. Corporate buyers might delay AI spending if cost savings or revenue gains take longer than expected to appear.
Signals Investors Are Watching
- Cloud and data center capital spending plans from hyperscalers.
- Adoption metrics for AI assistants and developer tools.
- Chip supply, pricing, and lead times for advanced accelerators.
- Regulatory moves in the U.S. and Europe that affect data or competition.
- Productivity gains tied to AI inside large enterprises.
Multiple Views on Market Breadth
Some strategists argue that gains will spread to smaller firms as AI tools reach more sectors, from healthcare to manufacturing. Others expect leadership to remain with cash-rich platforms that own distribution and data. History offers mixed lessons: past tech booms began with a few leaders and then widened, but not every cycle broadened quickly.
For now, Anmuth’s view reflects the current tilt. Quality balance sheets, rising earnings estimates, and strong price trends align with the companies most tied to AI spending. That mix has rewarded investors who stayed with mega-caps through recent volatility.
Anmuth’s call adds to a debate that is shaping portfolios across Wall Street. If AI demand holds and earnings keep rising, leadership from the Magnificent Seven and other high-quality growers could persist. If adoption or policy stumbles, the market may seek new winners. Investors will be watching the next round of earnings, AI product updates, and capex plans for clues on how long the trade can last.
