Major Indexes Rebound Amid Economic Concerns and AI Growth

In the early months of this year, the three major stock indexes faced challenges as investors grew concerned about economic conditions. President Donald Trump announced a plan to impose tariffs on imports, which analysts warned could hinder growth. Higher costs for businesses and consumers could negatively impact corporate earnings.

Recently, the S&P 500 (SNPINDEX: ^GSPC), Dow Jones Industrial Average (DJINDICES: ^DJI), and Nasdaq Composite (NASDAQINDEX: ^IXIC) have shown signs of recovery. Key factors include the U.S. reaching preliminary trade agreements with the U.K. and China, coupled with a temporary exemption for electronics from import tariffs.

Ongoing Uncertainty in Trade

Despite the recent positive developments, uncertainty remains. A federal court ruling initially stopped Trump’s tariffs but was later overturned by an appeals court allowing duties to continue. Tensions with China have also escalated, as the U.S. accused China of breaching their trade agreement.

AI Sector Growth Outlook

These fluctuations may prove to be short-lived, particularly as artificial intelligence (AI) stocks are projected to thrive. Analysts predict the AI market could exceed $2 trillion by the early 2030s, making it a standout sector for potential investment.

Image source: Getty Images.

1. Advanced Micro Devices (AMD)

Nvidia dominates the AI chip sector, yet Advanced Micro Devices (NASDAQ: AMD) is gaining traction. AMD’s MI300X AI chip has shown quality performance, boosting its data center revenue by 57% in the recent quarter. CEO Lisa Su noted consistent year-over-year growth despite economic challenges, with non-GAAP gross margins increasing from 52% to 54%.

AMD also strengthened its position in the central processing unit (CPU) market, gaining over 16% in market share and nearing a competitive standing with Intel. The stock trades at 27 times forward earnings estimates, a decrease from 54 times a year ago, suggesting a favorable buying opportunity.

AMD PE Ratio (Forward) data by YCharts

2. Broadcom (AVGO)

Broadcom (NASDAQ: AVGO) excels in networking products, serving various sectors from smartphones to data centers. The company recently reported a 77% increase in AI revenue, reaching $4.1 billion, alongside record consolidated revenue and EBITDA. Broadcom forecasts $4.4 billion in AI semiconductor revenue for the next quarter as demand from cloud service providers continues to grow.

The company expects three major cloud clients to contribute to a serviceable addressable market of $60 billion to $90 billion by fiscal 2027. Currently, Broadcom’s stock is nearing its all-time high while trading at 36 times forward earnings estimates, indicating potential for further upside as indexes recover.

3. Oracle (ORCL)

Oracle (NYSE: ORCL) has evolved from a database management platform to a significant AI player. The company’s AI cloud infrastructure revenue jumped nearly 50% recently, driven by a record $48 billion in sales contracts, improving its remaining performance obligations by 63% to $130 billion.

Oracle is also involved in the Stargate project to enhance AI infrastructure in the U.S. and internationally, partnering with companies like Nvidia to build a campus in the UAE. Valuation-wise, Oracle is trading at 27 times forward earnings estimates, making it a compelling option for potential growth in the coming months as markets stabilize.

Investment Considerations

Before investing $1,000 in Advanced Micro Devices, consider the current recommendations from financial analysts. Although AMD shows promise, there are other stocks that analysts suggest may offer significant returns as well.

Adria Cimino has positions in Oracle. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Nvidia, and Oracle. The Motley Fool recommends Broadcom and certain options. Detailed disclosures are available.

The views expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.