AI Boom Creates Market Split as Nvidia Leads Rally and AI-Linked Risks Emerge

A wave of AI-driven momentum is pulling some tech stocks to fresh highs while unsettling traditional, previously stable names, creating a cleaved market narrative. Nvidia, whose chips are central to AI language models, has surged to a valuation above $4 trillion, underscoring the breadth of the AI rally. At the same time, Alphabet, the parent company of Google, joined the elite $3 trillion club as demand for AI-enabled products and services lifted its stock over the past year. The divergence underscores a broader shift in investor sentiment as firms race to monetize AI across software, hardware, and services.

Tech giants racing to capitalize on the AI boom, including Meta Platforms, Microsoft, and Oracle, have carried much of the market higher, but the AI wave has also unsettled traditional and previously stable stocks. Bank of America's 2023 basket of stocks deemed potentially vulnerable to AI disruption has, since mid-May, trailed the S&P 500 by roughly 22 percentage points, Bloomberg reported. Investors have cited the rapid pace of AI-enabled disruption in sectors ranging from image licensing to language learning, as some incumbents face shrinking demand for their existing business models.

In the year through Sept. 16, several names on the risk list posted sizable declines. Shutterstock fell about 27.51%, and Adobe, a supplier of digital media tools, dropped about 20.75%. Wix.com, which helps users build websites, declined 17.04%, while Duolingo’s stock was down 13.41% over the same period. GoDaddy, the internet domain registrar and hosting company, also retreated more than 27% over the last year. Among the group, the staffing and human-resources sector bore steep losses: Robert Half’s shares dropped nearly 50% year to date, while Manpower Group fell about 33.68% since September 2024. Fiverr, a marketplace for freelance services, slid roughly 26.82% over the past year.

The posture of the risk list has drawn commentary from analysts who warn that AI’s effects will not be uniform. Daniel Newman, CEO of the Futurum Group, told the Daily Mail that knowledge and services businesses are highly vulnerable as AI accelerates, noting that industries such as consulting, accounting, marketing, and research can be completed more quickly and with less friction using AI tools. He added that executives across tech indicate they expect to slow hiring as AI tools mature, even as others anticipate a broader productivity boom that could spawn new kinds of roles even as demand for traditional roles ebbs.

Meanwhile, some AI beneficiaries have already shown staying power. Alphabet’s stock rose about 32.68% in the past year, lifting the search giant into the >$3 trillion market-cap tier as demand for AI offerings and cloud services supported results. Steve Sosnick, chief strategist at Interactive Brokers, warned about risks from a concentrated AI rally, recalling how similar dynamics unfolded when President Donald Trump unveiled tariffs in April andbig-tech stocks briefly underperformed the broader market. “The whole market is predicated on the AI trade,” he said, cautioning that crowded trades and a strong consensus can lead to sharper reversals.

Bret Kenwell, US Investment Analyst at eToro, echoed the sentiment that AI has been a major catalyst for stocks not only this summer but for more than two years, noting that while Nvidia has captured most of the spotlight, numerous other firms have benefited from AI infrastructure growth. “While stocks like Nvidia have been in the spotlight, many other firms have been major beneficiaries of AI and AI infrastructure buildout,” he said.

That optimism sits alongside warnings that AI’s impact will not be uniform across the economy. Experts have drawn parallels to the late-1990s dot-com era, but many acknowledge AI ETFs and individual names remain cash-flow generators for now. As companies invest heavily in AI tooling, some industries could experience faster automation of routine tasks—ranging from data entry and customer service to scheduling—potentially reshaping hiring patterns in the near term.

The market’s sensitivity to AI progress is further underscored by consumer-oriented milestones, such as Apple’s announcement of real-time language translation capabilities embedded in new headphones, illustrating the rapid pace of AI-enabled product features seeping into everyday life. Analysts caution that while AI promises a substantial productivity impulse, the path to broad-based gains will depend on corporate adoption, regulatory developments, and the durability of demand for AI services.

Against this backdrop, participants remain watchful for signs of a rotation away from the names that have powered the AI rally to others that stand to gain from AI-enabled efficiency. Some strategists argue that the AI wave could broaden beyond semiconductors and mega-cap tech into cybersecurity and software, as businesses seek to protect and optimize AI-driven operations. Others warn that a crowded narrative can lead to valuations disconnects if earnings growth slows or if cost pressures mount.

The AI-driven market today continues to be shaped by a blend of blockbuster gains from a handful of cash-flowing stalwarts and the realignment of capital away from companies perceived as more exposed to disruption. With the OpenAI-powered transformation that began to take hold after ChatGPT’s debut in October 2022 and the continued evolution of AI products and services, investors are weighing whether the current rally can sustain or if a broader reset is on the horizon. The coming quarters will test whether AI’s productivity promise translates into durable profits across a wider swath of the market or remains concentrated among a few high-flyers.