Tech Stocks Can’t Be Stopped. Has the Iran Decoupling Begun?

Key Points

Major indexes fell for the second straight day on Tuesday as investors pulled back on news that the Iran-U.S negotiations were not happening as scheduled.

The decline offered a reminder that the Iran war situation isn’t resolved and that further gains in the stock market won’t be so easily achieved.

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However, one sector of the stock market continued to march higher despite tensions flaring again in the Middle East. That was the technology sector as ETFs like the State Street Technology ETF (NYSEMKT: XLK) and the iShares Semiconductor ETF (NASDAQ: SOXX) have soared.

For both of those ETFs, Tuesday marked their 15th straight day of gains, dating back to March 31, a sign that the tech sector may be decoupling from the rest of the market.

Image source: Getty Images.

The AI trade is back

As concerns about the Iran war have faded, the AI trade has come roaring back. That makes sense, as AI was the dominant narrative on the market before the Iran war started, and, while investors have been focused on the Middle East conflict, there have been a number of positive developments.

Anthropic continues to push the envelope with its new Mythos AI model, which is reportedly too powerful to be released to the public, and SpaceX just struck a deal that gives it the option to buy Cursor, an AI start-up, for $60 billion.

The billions sloshing into AI start-ups like Anthropic and Cursor and the SpaceX IPO, which is reportedly targeting a valuation of up to $2 trillion, all signal that the AI boom is alive and well, and that should translate into tens of billions of dollars flowing into chip stocks like Nvidia.

Individual chip stocks have soared on positive developments in recent weeks as well. Intel, for example, said it was joining the Terafab Project, whose goal is to produce 1 terawatt /year of compute, partnering with SpaceX, xAI, and Tesla.

Broadcom signed a long-term agreement to supply Google with custom TPUs, and Anthropic, Google, and Broadcom expanded their strategic collaboration.

Nvidia, meanwhile, announced the first open-source quantum AI model family. Arm Holdings said it was designing its first chip, breaking from its historical model of licensing instruction sets for CPUs, and AMD and Intel both announced plans to raise prices on their CPU product lines.

Many of those stocks are top holdings on the SOXX ETF, while the State Street Tech Sector ETF holds a number of top chip stocks like Nvidia, Broadcom, and AMD, as well as stocks like Apple and Microsoft.

Can tech stocks keep moving higher?

Like the rest of the market, which has bounced back aggressively from the bottom in March, tech stocks aren’t cheap. The State Street Tech Sector ETF trades at a price-to-earnings ratio of 37, while the SOXX trades at a P/E of 47.

Still, the past month has shown that the AI boom has plenty of legs, and that’s likely to lift tech stocks even higher.

We’ll learn more from earnings season as a number of “Magnificent Seven” stocks are set to report first-quarter results next week. If they deliver strong results, don’t be surprised to see these two ETFs take another leg up.

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Jeremy Bowman has positions in Advanced Micro Devices, Arm Holdings, Broadcom, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Broadcom, Intel, Microsoft, Nvidia, and iShares Trust-iShares Semiconductor ETF. The Motley Fool has a disclosure policy.

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