'AI Rally' Sends U.S. Stocks to Record Highs Day After Day... More Upside or Bubble Fears

There are growing voices saying that U.S. stocks have entered a long bull market this year, despite headwinds ranging from tariffs to the Iran war. Some market participants pointed to the earnings of semiconductor and artificial intelligence (AI) companies leading the market and predicted further gains. But bubble concerns are also rising.
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The Financial Times (FT) reported on May 31 local time that the S&P 500 hit a record high 11 times in May alone, reflecting the upbeat mood in the market. That pace meant the index set a new all-time high roughly every other trading day in May. As of the end of May, the S&P 500 was up 11% from the start of the year, while the tech-heavy NASDAQ Composite Index had gained 16% over the same period. The Dow Jones Industrial Average (DJIA) rose about 6%.
Semiconductors and AI were the main drivers of the market. The Philadelphia Semiconductor Index surged 81% from the start of the year, posting its strongest gain since 1999. The index tracks the 30 largest U.S.-listed companies involved in semiconductor design, manufacturing, and sales. Shares of SanDisk Corporation, a U.S. semiconductor company, have jumped 600% this year, while AI-related chip stocks including Micron, Dell, Intel, Seagate Technology, and WDC have risen nearly 200% over the same period. NVIDIA, which had already been on an upward trend for several years, has gained another 13% this year.
U.S. investment banks including Goldman Sachs and Morgan Stanley have repeatedly raised their year-end targets for the S&P 500 after first-quarter earnings came in far above expectations. Steve Chiavarone of Federated Hermes said, "I don't think we are in a bubble," adding, "Historically, long bull markets run on 20-year cycles, and we are in the middle of one now and accelerating."
Ben Snyder, chief U.S. equity strategist at Goldman Sachs, said, "We do not see signs of speculative excess, margin compression, or interest-rate hikes that typically signal the end of a bull market," and predicted that "the recent rally will continue."
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At the same time, voices warning of a bubble are also emerging. According to financial data provider FactSet, the forward price-earnings ratio (PER) for the S&P 500, based on expected net income over the next 12 months, currently stands at 21 times, above the 30-year average of 17 times. The PER is calculated by dividing a company's share price by its net income. A higher PER means the stock is more expensive relative to earnings.
Paul Tudor Jones, founder of Tudor Investment Corporation, described the U.S. stock market as a "crazy era" in an interview with CNBC in early May. He said, "In terms of PER, operating profit, and everything else, we are in a period similar to October and November 1999." During the dot-com bubble, the Nasdaq peaked in March 2000.
Ed O'Gorman, CEO of River Wealth Advisors, also pointed to semiconductor stocks, saying, "You can expect further gains, but I can't shake the thought of how volatile the semiconductor sector is and how quickly it can change overnight." Kai Wu, chief investment officer at ETF manager Sparkline Capital, said, "The peak in semiconductor earnings can only be identified in hindsight." He added, "The key to the bubble debate is how long AI infrastructure buildout will continue. If investment keeps going, semiconductors will probably keep performing well, but we may also be getting ahead of ourselves."
pjw@fnnews.com Park Jong-won Reporter