AI stocks rally pushes S&P 500, Nasdaq, Kospi to record highs: Are valuations still justified?

Technology stocks across the US and Asia are witnessing a strong rally, driven by sustained optimism around artificial intelligence (AI) and aggressive capital spending by global tech giants.

Shares of chipmakers led the gains. AMD rose 4.02% and surged over 16% in extended trading ahead of its quarterly results on Tuesday. Intel shares jumped 13% and Apple stock price also advanced 2.64%, reflecting broader strength in AI-linked names.

The rally in semiconductor stocks pushed the Philadelphia Semiconductor Index up 4.2% to a record high. The index has now gained 55% so far in 2026. Broader markets mirrored the momentum. Both the S&P 500 and Nasdaq Composite closed at record highs, supported by gains in AI and semiconductor stocks.

In Asia, the rally has been equally strong. South Korea’s benchmark KOSPI index crossed the 7,000 mark for the first time, led by a surge in semiconductor heavyweights.

Samsung Electronics shares breached the $1 trillion market capitalisation milestone, while SK Hynix jumped to record levels. Together, the two companies now account for roughly 44% of the index’s total value.

What’s driving the AI rally?

The primary catalyst behind the rally in AI stocks is the sharp increase in capital expenditure by hyperscalers.

Tech giants — Microsoft, Amazon, Alphabet and Meta — are expected to collectively spend close to $700 billion in capex this year, nearly double their 2025 outlay.

According to Viram Shah, Co-founder and CEO of Vested Finance, at least three of these companies have raised their capex guidance in the latest earnings cycle, indicating that the AI build-out remains firmly on track.

“This spending is directly translating into revenues for companies across the AI ecosystem — from Nvidia and semiconductor foundries to networking and power infrastructure firms,” Shah noted.

He added that Goldman Sachs estimates AI-linked investments could contribute nearly 40% of the S&P 500’s earnings growth this year.

“So in a sense, AI isn’t just driving the rally — it is the rally,” said Shah.

However, he cautioned that market breadth has narrowed significantly, with gains concentrated in a handful of large-cap names — a trend reminiscent of the dot-com era.

Valuations: Elevated but not extreme

While valuations have expanded, they have not yet reached panic levels.

The S&P 500 is currently trading at around 21–22 times forward earnings — slightly below its recent peak and still under the extreme multiples seen during the dot-com bubble. The cyclically adjusted price-to-earnings (CAPE) ratio is in the top decile of its 40-year range, indicating elevated but not unprecedented valuations.

Within the AI space, investor behaviour is becoming more selective.

“Infrastructure suppliers with visible order books are still being rewarded, while the mega-cap platforms are starting to face tougher questions, particularly around how quickly GPUs depreciate and whether the spending will translate into actual revenue,” said Shah.

Outlook: Strong momentum, but risks emerging

The near-term outlook for AI stocks remains constructive, supported by robust spending and earnings visibility.

“As long as hyperscalers keep writing the cheques and earnings keep coming through, the rally has legs,” Shah said.

However, he highlighted key risks that could alter market sentiment. These includea any signs of moderation in capex spending, potential impairment charges on AI infrastructure, and a more hawkish-than-expected stance from the US Federal Reserve.

Looking ahead, the next phase of the AI trade is likely to shift focus.

“The market will increasingly differentiate between companies building AI infrastructure and those that can effectively monetise it,” Shah added.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.