The fervor surrounding artificial intelligence has fueled a significant rally in the "Magnificent Seven" tech stocks this year, with several reaching record highs. However, analysts predict this AI-driven growth will extend into other sectors in 2025, potentially reshaping market performance.
The "Magnificent Seven," including tech giants like Tesla, Meta, Amazon, Alphabet, and Apple, have seen substantial gains, while Nvidia's shares have surged by over 175%. This concentration of growth is expected to shift as investors look towards broader market participation next year.
Looking ahead, market strategists forecast the S&P 500 reaching new heights, propelled not solely by large-cap tech, but by a wider array of companies benefiting from the AI boom. Goldman Sachs projects the index could hit 6,500 by the end of 2025, with earnings growth expected to normalize across various sectors.
This anticipated shift suggests that the rapid earnings growth previously seen in large-cap tech may slow, while other companies within the S&P 500 are expected to experience an upswing. This indicates a potential narrowing of the performance gap between tech giants and the broader market.
Similarly, BofA's equity strategy team has issued a 2025 year-end target of 6,666 for the S&P 500, underscoring expectations for a more widespread earnings expansion partially driven by investments in AI infrastructure across multiple industries, not just tech.
The expansion of AI-related expenditures is already evident, with companies such as Microsoft, Amazon, Alphabet, and Meta increasing their capital expenditure significantly, not only on AI chips, but on the infrastructure to power their data centers. The massive power requirements of these facilities is also generating interest in sectors such as utilities.
BlackRock's Investment Institute noted that the daily power consumption of one AI data center rivals the needs of New York City, further driving the demand for companies in utilities sector, which has already seen substantial gains in 2024 due to the AI-driven push. As such, the outlook for 2025 suggests a potential shift from concentrated tech-driven growth to a broader market rally, driven by both the benefits and infrastructure buildout necessary for AI deployment.
