Tech Stocks Are Surging. The Nasdaq Is at Highs. Can the AI Trade Keep Rolling?

• The Nasdaq closed at a record high on Wednesday as investors looked past uncertainty surrounding the war in Iran to focus on the likelihood of a strong first-quarter earnings season for tech companies.

• Investors will be eyeing the results of software companies, memory chip makers, and major cloud providers for clarity on the trajectory of AI spending.

The AI trade is back on.

The Nasdaq Composite, after more than five months of searching for direction, set a new record high on Wednesday as stocks continued their risk-on rally. The index rose more than 1.5% on Wednesday to close above 24000 for the first time and surpass its late-October record.

Even before Wednesday, tech was the best-performing sector since the war in Iran began. Tech stocks rose nearly 6% from late February to Tuesday’s close, more than quadrupling the return of the S&P 500 over that period.

War in Iran and the resulting oil shock appeared to imperil the 3-year-old bull market that’s largely been fueled by spending on artificial intelligence. With investors increasingly confident that the war is winding down, optimism has revived the tech trade.

And investors appear confident that the war in Iran won’t derail a U.S. economy still riding the tailwinds of AI spending— despite continued uncertainty surrounding peace talks and a reopening of the Strait of Hormuz, factors that until recently were clear headwinds for stocks.

“The market was looking for a reason to go up and got one as soon as there were signs a deal could still be in play,” says Shay Boloor, chief market strategist at Futurum Equities, of this week’s rally. “The fact that the Nasdaq is back at all time highs tells you investors are still willing to look through geopolitical noise when the earnings engine underneath the AI cycle remains this strong.”

AI spending is expected to continue to fuel the tech sector’s growth this year, especially at the firms designing and making the semiconductors used to train and run AI models. Tech earnings estimates have increased by 6% since the start of the war, and analysts forecast the sector grew earnings by 44% last quarter, according to Jeff Buchbinder, chief equity strategist at LPL Financial. “Earnings were expected to grow at a strong clip, but analysts again underestimated the sector’s earnings power,” wrote Buchbinder.

Tech earnings estimates rose last month, but share prices prices fell amid concerns about the war in Iran and its economic impact. As a result, once pricey stocks were trading at attractive valuations when the announcement of a ceasefire in Iran lifted hopes for an end to the conflict. Even after two weeks of gains, the tech sector currently trades at an 8% premium to the S&P 500—“about in line with the long-term average and still attractive given the strong outlook for earnings growth and robust profit margins,” according to Buchbinder.

The tech sector is “rich in idiosyncratic opportunity” after last month’s slump, according to Bank of America analyst Savita Subramanian. Investors last month sold tech simply because it was tech, Subramanian wrote in a note on Thursday, and likely threw some babies out with the bathwater—meaning selective investors could pick up shares at appealing prices.

First-quarter earnings season, which will hit its stride later this month, could help investors identify more babies. Software companies may be among them: Their stocks have been hit hard by concerns that the rise of AI agents, capable of whipping up functional code in the blink of an eye, will rewrite the economics of the industry. But Morgan Stanley analysts on Thursday noted that conversations with industry contacts “point to a healthy demand environment in Q1 and cautious optimism for 2026” for infrastructure software providers like Datadog (DDOG) and Palantir (PLTR), who they say are likely benefiting from AI adoption.

Investors will be looking to Big Tech’s capital expenditures to confirm that war hasn’t sapped the data center buildout of its momentum. They’ll also be eyeing the results of memory chip and data storage device makers, whose shares have soared amid a supply shortage exacerbated by booming data center demand.

Earnings season could also revive the AI bubble debate that reached a fever pitch last year before subsiding amid the war. Investors worried about speculative frenzy got another worrying signal this week: shares of defunct shoe maker Allbirds (BIRD) soared nearly 600% on Wednesday after the company announced plans to become an AI infrastructure company.

“When a company that sold its shoe brand for $39 million … can add $127 million of market capitalization in a single trading session simply by announcing a pivot to GPU leasing, the market is not pricing risk. It is pricing narrative,” said Mark Malek, chief investment officer at Siebert Financial. “It is pricing the word ‘AI’ the same way it once priced the word ‘blockchain’ and before that the suffix ‘.com.’,” he added, referring to the Dotcom Bubble of the 1990s.

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