U.S. stocks with heavy exposure to artificial intelligence climbed on Wednesday, with Nvidia leading the charge as chipmakers rebounded. The S&P 500 added 0.57%, and the Nasdaq Composite rose 1.12%, while the Dow Jones Industrial Average slipped, according to Reuters. Investors continued to pour into firms most tied to AI infrastructure, largely ignoring a hotter-than-expected inflation reading that dampened hopes for imminent Federal Reserve rate cuts.
Nvidia shares advanced about 2.7% to $226.81 in afternoon trading, pushing the company's market capitalization past $5.5 trillion. The company's graphics processing units (GPUs) remain the go-to benchmark for AI data center investment. Nvidia is scheduled to report its first-quarter fiscal 2027 results after the market closes on May 20.
The rally received fresh support from analysts. Bank of America raised its Nvidia price target to $320 from $300, while Wells Fargo increased its target to $315 from $265, citing robust AI data center demand and the upcoming earnings report as key catalysts. BofA analysts highlighted potential catalysts including earnings, Computex, and the launch of the Vera Rubin platform.
Not all chip stocks joined the rally. Advanced Micro Devices fell approximately 0.4%, and Broadcom lost 0.7%. Nvidia's gain underscores investor preference for companies with the most direct exposure to AI spending, while other semiconductor names failed to attract the same level of enthusiasm.
Among non-mega-cap stocks, Nebius stood out. Shares of the AI cloud firm surged roughly 19.7% after reporting first-quarter revenue of $399 million, a 684% increase year-over-year. The company also announced it has secured up to 1.2 gigawatts of electricity and land for a new AI facility in Pennsylvania. Nebius CEO Arkady Volozh told Reuters, "We typically see several customers competing for every GPU we bring online." The company raised its annual capital spending target to a range of $20 billion to $25 billion, highlighting the heavy investment required for AI expansion.
However, risks are becoming harder to ignore. Rising wholesale prices threaten to squeeze margins, increase data center construction costs, and keep borrowing costs elevated for companies relying on debt to fund AI ambitions. Ben Ayers, senior economist at Nationwide, called the uptick in input costs a sign of "further increases for consumer prices in May." John Ryding at Brean Capital noted that energy prices are seeping into other expense categories.
Jim Baird, chief investment officer at Plante Moran Financial Advisors, described the current market as a battle between "the strong earnings story and inflation risks." For now, he said, markets are siding with earnings, but he cautioned that ignoring the potential for an extended period of elevated rates would be unwise.
Prediction markets reflected a cautious stance. Polymarket's Fed dashboard showed a 98% probability that rates will remain unchanged at the June 17 Federal Reserve meeting, with only a 1% chance of a 25-basis-point cut. Kalshi users favored "maintain rate" at 97% for the June Fed decision contract. Polymarket odds further out indicated a 70% likelihood of no Fed cuts in 2026.
In other news, Nvidia CEO Jensen Huang was in Beijing with President Donald Trump, meeting with China's President Xi Jinping to discuss chip policy, trade, and business access. Shares of Nvidia and Tesla climbed as traders assessed the potential impact on U.S. companies' access to China's tech sector.
Morgan Stanley raised its S&P 500 year-end target to 8,000 from 7,800, citing earnings growth rather than multiple expansion, with AI and productivity improvements factoring into the profit outlook. However, the note flagged inflation as a risk for valuations.
