Stocks may have broken through a "momentum shock" tied to the second-quarter earnings season and a rotation within the tech sector, paving the way for gains into the final months of the year while taming some of the market's wilder excesses.

A strong set of tech earnings, powered by the market's biggest hyperscalers and the AI investment boom, has triggered a sharp reversal in stock performance over the past month, driving the S&P 500 to a fresh record high and reviving a trade that had gone dormant for much of the year.

The swings inside those gains, which have seen the Nasdaq Composite power more than 7.6% higher over the past four days, are even more telling.

Beaten-down software stocks have staged a sharp rebound over the past month, rising 5.8%. The iShares Expanded Tech-Software Sector ETF, in fact, is up more than 18% from the multi-month low it reached on June 25.

Over the same time period, high-flying chip stocks have pulled back sharply, with the PHLX Semiconductor Index falling 18.5% from its late June peak and more than 5% over the past month.

Big declines in chip-centric markets in South Korea, where the Kospi fell more than 22% in July and Japan's Nikkei 225 slumped 8.1%, accelerated that divergence.

Société Générale analysts, led by chief U.S. equity strategist Manish Kabra, describe the sudden change of fortunes as a "momentum shock," concentrated in the tech sector, that was partly driven by the headlines surrounding the Situational Awareness hedge fund.

But it also clears the deck for a potential run higher in some of the so-called Magnificent Seven tech giants, particularly those tied to the AI capex trade, a theme that has troubled investors for much of the year.

"The best hard data for AI expansion is the hyperscalers' cloud revenue growth," Kabra said. "Big Three cloud growth accelerated with Google at 82%, Microsoft at 43% and Amazon at 37%. Backlogs rose by $300 billion and capex guidance increased by $150 billion."

Those big tech names, as well as the broader sectors themselves, are also leading second-quarter earnings growth, which is forecast to rise more than 29% from last year to more than $705 billion.

LSEG estimates, in fact, see the three main tech-focused baskets of consumer discretionary, communications services and information technology stocks driving nearly 50% of the $760.7 billion in bottom line earnings expected over the three months ending in September.

"The three big hyperscalers that provide the backbone for AI implementation to end users are still showing a substantial boom in cloud revenue growth," Kabra noted. "Cloud growth remains one of the best pieces of 'hard data' confirming the ongoing implementation of AI."

Microsoft shares turned positive for the year in early Tuesday trading, having gained nearly 27% since their better-than-expected June-quarter earnings last Wednesday. Google is up around 18% while Amazon has powered more than 20% higher over the same timeframe.

Those gains have helped the index of Mag 7 stocks rise more than 5.3% over the past month, leaving it just 3.1% below the all-time high it reached in late May.

Stocks are also exiting a challenging July, which included the highest levels in long Treasury bond yields since 2007, renewed tensions between the U.S. and Iran that stoked the biggest gains in crude prices since March, and a Federal Reserve rate meeting that left investors both confused and convinced about the central bank's rate-hiking plans heading into the autumn.

"The market's discontent last month was warranted," said Anthony Saglimbene, chief market strategist at Ameriprise. "But the fundamental foundation is stronger than the headlines suggest, and the AI spending concerns are being aired in the open market rather than festering behind the scenes."

Bret Kenwell, U.S. investment analyst at eToro, says the renewed Mag 7 surge "may signal a long-overdue rebalancing within the AI trade" as Wall Street "rethinks its retreat from mega-cap tech."

"One week of price action hardly defines a trend, but it could represent the turning point this group needed to reclaim its leadership role," he said. "If that happens, megacap tech could help steady the broader market through the seasonally difficult August-to-September stretch."