Yes, Artificial Intelligence Stocks Are Booming

Digital generated image of abstract growing diagram with Ai signs on blue background.

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Using new tech in the workplace and at home is nothing new. But the November 2022 introduction of ChatGPT, a generative artificial intelligence service, made the use of AI the norm, and at breakneck speed.

Since the end of 2022, anyone who purchased the so-called Magnificent Seven (Mag 7) stocks, all of which are embracing AI, should have profited handsomely. The stocks are Nvidia (NVDA), Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT) and Tesla (TSLA). Collectively, these stocks were worth about $20 trillion recently, up threefold from $7 trillion less than three years ago. But stock market professionals are divided on their prospects.

Some are bullish, others see a bubble. Brian Glenn, chief investment officer at private wealth adviser Premier Path Wealth Partners, says the surge in AI-related stocks is not yet in a bubble. "If everyone is talking about a bubble, it probably isn’t," he says. He has a point. "No one rings a bell at the top of the market," says Wall Street veteran Art Cashin.

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"Inflation is stable, interest rates are stable and with a downward bias, and earnings are trending higher," says Terry Sandven, chief equity strategist at US Bank. "It supports a higher valuation."

Of course, "this time it’s different," is what Wall Street bulls always say. Famously, legendary investor the late Sir John Templeton said those were "the four most dangerous words in investing."

What’s happening away from Wall Street?

AI needs three things to grow. First, data centers, which are the engine of AI. Second, new electricity sources, such as small modular nuclear reactors. Lastly, enhanced software so that consumers and businesses can efficiently utilize the technology.

All three are needed to increase AI performance. Ethan Mollick, a University of Pennsylvania professor at The Wharton School and co-director of the Generative AI Lab, says, "You need a 10-times increase in computing power to get a linear increase in performance." That’s why large-scale AI deployment needs lots of investment money.

Sandven says the world with AI will speed up permanently. "The rate of change in our society is getting faster, and it will never slow again largely because of tech," he says. "We are in the early innings in the building, and fast is getting faster."

So far, companies betting on AI are happy to spend. "We still see more upside, just as we are employing capital expenditure we have spent," Sandven says. "And we think that will last another few years." Increased investment will keep many businesses and their employees busy while a new infrastructure gets built. That will benefit the United States economy, at least for a few years.

AI Stocks: Who’s buying and who is selling short?

The largest buyers of the MAG 7 stocks are money management companies that dominate passive investment products, such as exchange-traded funds. Money managers Vanguard, BlackRock, State Street, Fidelity, and J.P. Morgan collectively have approximately $36 trillion under management, or about half the value of the S&P 500’s market cap.

Because of this bias toward passive investing, a disproportionate amount of money is being invested in Mag 7 stocks. By Dec. 12 of 2025, the Mag 7 share of the S&P 500 index had grown to 32%, according to an analysis by Yardeni. That’s one-third of the value of the S&P 500.

For some investors, having a third of their investments in huge tech companies is too much. They opt to find ways to reduce their exposure, Glenn says. For instance, money managers may short-sell some Mag 7 stocks by borrowing shares to reduce their overall tech exposure. Likewise, some use financial derivatives, such as stock options or futures contracts, to do a similar job.

Recently, the percentage of the stock float of the Mag 7 that is being short-sold has been relatively modest, between a low of 0.4% and a high of 2.7%, according to MarketBeat. Most of the seven stocks were less than 1%.

Consequently, experts say the growing use of AI promises massive positive changes in the global economy, including a more efficient workforce, reduced production costs, increased profits and improvements in people's lives.

AI business hiccups in the waiting

However, some of the major AI-related corporations are engaged in a circular investment scheme, says Ted Mortonson, Baird's managing director of technology and a veteran of tech growth.

For instance, Oracle is spending tens of billions of dollars on Nvidia chips, while OpenAI inks a $300 billion cloud deal with Oracle. Meanwhile, OpenAI is deploying 6 gigawatts of AMD graphics processing units, while AMD grants OpenAI an option to buy 160 million shares.

A slew of smaller companies are also involved in the mix, including Mistral, CoreWeave, and xAI. "The street is moving to a high capital model with low free cash flow," he says. "Microsoft and Google have monopolies for enterprise software and will benefit no matter what."

Meanwhile, a global chip shortage is increasing the cost of AI deployment. Part of that problem could be related to tariffs and the global trade war. "In this business cycle, which we have never had before, it is the tariffs," Mortonson says.

Massive investment in AI assumes future profits, says Ryan Stever, chief investment officer at Intech Investments, "but that is three to five years away. It’s a long time." Should projected profits fail to materialize, AI-related stocks could drop sharply.

It’s hard to know which companies will be the winners. Right now, AI companies are competing head-to-head, Stever says. "There will be winners and losers, and people will have to pick their stocks," says Nitin Sacheti, portfolio manager at Papyrus Capital. "At the same time, so many other businesses will make our lives better."

Sacheti says the companies involved in constructing data centers and power plants have definitely benefited. "But in 2027 and 2028, those companies will have a hard time," he says. "The high labor use and investment for this physical infrastructure is a once-in-a-lifetime event."

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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