Chart Storm: 10 Reasons AI Stocks Have Bottomed

2026 is another example of how Wall Street is never obvious. On the surface, the performance of the major market indices would suggest that it is a fairly simple year. For instance, as of the time of this writing, the Nasdaq 100 Index ETF (QQQ) is up more than 16%, well above the average annual returns, and it’s only August.  However, tech investors who had skin in the game in July would correctly tell you otherwise. Although QQQ just suffered what many investors would call a “garden variety” correction of ~10%, leading momentum growth stocks suffered their worst drawdowns since the COVID-19 crash in 2020.

Image Source: Goldman Sachs

Why AI Stocks are a Buy

Although the carnage in AI stocks was breathtaking, crisis equates to opportunity on Wall Street. Below are ten reasons to buy AI stocks here:

·       Kimi K3 Fears are Overblown: The improved efficiency in AI models is not a death sentence. A concept called ‘Jevon’s Paradox’ suggests that when a tool or machine makes using a resource more efficient, the total amount of that resource goes up, not down.

·       The CAPEX Spending Boom is Not Slowing: The latest big tech guidance shows that AI infrastructure is not slowing any time soon.

Image Source: @SonusVarghese, Carson

·       Shorts are Caught Offside: The latest data shows that short sellers have piled into AI infrastructure stocks such as Cipher Digital (CIFR) and Nebius Group (NBIS). After the recent tech rebound, these short sellers will likely be forced to unwind their positions over the coming weeks.

·       Liquidation Reset: The forced selling by overleveraged investors likely caused an overshoot to the downside.

·       Companies are Beating Wall Street Expectations: The proportion of S&P 500 companies beating earnings estimates in Q2 is at a record high.

Image Source: Bloomberg, Deutsche Bank

·       Blistering Earnings Growth: “S&P 500 Q2 earnings are on pace to rise 47% YoY, the highest growth rate since Q2 2021. We’ve never seen earnings growth this high outside of post recessionary rebounds. This is an unprecedented boom fueled by massive EPS gains in big tech, including markups in SpaceX (SPCX) & Anthropic.” ~ Charlie Bilello (@charliebilello)

Image Source: @CharlieBilello, Creative Planning

·       GPU Rental Rates: GPU rental rates are one of the single best economic barometers of the AI boom. The latest rental data shows that GPU rental rates continue to climb.

Image Source: Zacks Investment Research

·       Profit Margins Reach Record: S&P 500 pretax margins are soaring and are at their highest levels in history.

Image Source: Zacks Investment Research

·       Hyperscaler Backlogs: Three top hyperscalers have backlogs that are growing at a triple-digit clip, including Oracle (ORCL), Google (GOOGL), and Amazon (AMZN).

Image Source: Jeffries

·       Trend Change: Tuesday, QQQ regained its 50-day moving average, signaling a bullish trend change.

Image Source: TradingView

Bottom Line

While recent drawdowns tested the stomach of growth investors, market resets of this magnitude are standard features, not a sign of failure. With CAPEX expanding, enterprise backlogs swelling, and the fastest EPS growth in history, the AI bullish narrative remains intact.

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This article originally published on Zacks Investment Research (zacks.com).

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