MW Why the AI bubble in the stock market might still have a long way to run

By Philip van Doorn

Also: A live Q&A to answer your real-estate questions. Plus: One way to become a trillionaire.

Conventional wisdom is that the current bull market for stocks is "all about artificial intelligence." But even if this is true, there has been a sharing of the wealth, as you can see from this year-to-date performance chart for the 11 sectors of the S&P 500 through Thursday:

All returns in this article include reinvested dividends.

You might have expected to see the information-technology sector topping the list. But the communications sector actually includes Google holding company Alphabet Inc. $(GOOGL)$ and Meta Meta Platforms Inc. (META), which owns Facebook, WhatsApp and Instagram. These companies have made significant contributions to the S&P 500's SPX 11.5% return this year. The index is weighted by market capitalization, which means that Meta and Alphabet together make up 7.4% of the portfolio of the SPDR S&P 500 ETF Trust SPY. Alphabet's stock has returned 23% this year through Thursday, while Meta has returned 28%.

The largest three stocks in the S&P 500 are Nvidia Corp. (NVDA), which has returned 28% this year; Microsoft Corp. $(MSFT)$, up 21%; and Apple Inc. $(AAPL)$, which has pulled back 4%. Those three make up 20.9% of the SPY portfolio.

For investors worried that the S&P 500 has gotten overheated by exuberance over the potential of generative AI, Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, presented a contrarian view this week. In a note to clients he called AI a "twice in a lifetime" technological revolution that differs from the dot-com bubble that began to deflate in 2000 because so many different types of companies were being affected positively.

For example, the utilities sector has returned 12.2% this year, in part because of the increase in demand for electricity among data centers supporting AI.

Emanuel made the case for a long extension to the current bull market for stocks.

Another bullish take: Why Nvidia and these other chip stocks were just deemed hot plays for the rest of the year

And a big event for Apple next week: The iPhone 17 will be unveiled. Here are the three things investors should watch for.

You can have your real-estate questions answered live on Sept. 12

Aarthi Swaminathan covers the residential real-estate market. Next Friday from 1 p.m. to 2 p.m. Eastern time, she will be available in a live Q&A session to answer MarketWatch readers' questions about buying, selling and renting homes. You can post questions during the event or in advance by clicking here.

More real-estate coverage:

-- Here's one way the Fed could lower mortgage rates almost overnight - and it's not the rate cut Trump wants

-- Five ways the Trump administration could use declaring a national housing emergency to help home buyers

-- Mortgage rates drop to 11-month low, but buyers are holding back

AI competition

Semiconductor manufacturers are trying to challenge Nvidia's dominance of the market for graphics processing units (GPUs) being installed by data centers to support AI. Britney Nguyen covered Google's tensor processing units, for which budding demand could lead to an eventual spinoff with the potential to unlock tremendous value for Alphabet's shareholders.

On Thursday, Broadcom Inc. $(AVGO)$ reported its quarterly results after the close. The stock was up more than 9% in midday trading on Friday after Broadcom Chief Executive Hock Tan said large customers had been signing up for the company's new custom AI processors that could add as much as $10 billion in revenue next year.

Other AI-related developments:

-- Is Honeywell a quantum-computing stock now? There's a new link to Nvidia.

-- AMD's stock has shined this year, but have expectations gotten too high?

-- AI saved Google from the Justice Department. Here's why investors shouldn't celebrate just yet.

-- What's dragging down Salesforce's stock? It may be a bigger problem than AI.

A controversy over Trump's decisions on Intel and other companies

In the wake of President Trump's decision for the federal government to take a 10% equity stake in Intel and require Nvidia and Advanced Micro Devices Inc. $(AMD)$ to share revenue derived from customers in China with Uncle Sam, Jefferies presented a list of other companies that could become "the next targets for the U.S. State Capitalism."

Scores of MarketWatch readers left comments as they argued about the meaning of "state capitalism." You can read their arguments and join the conversation.

In case you think this type of relationship between the government and companies is anything new, look back to the federal bailout of the banking industry during the financial crisis that began in 2008. Through the Treasury's Capital Purchase Program, the government provided $204.9 billion to 707 institutions while being granted preferred shares in return, with 8% coupons. "After repayments, sales, dividends, and interest, however, the program resulted in a net gain of $16.3 billion," according to a December 2023 report from the Government Accountability Office.

Should you play the lottery? What if you win?

You might be better off considering the lottery to be a form of entertainment, according to Brett Arends.

Ahead of the Powerball lottery draw on Wednesday, when the jackpot was estimated to be $1.4 billion, Brett Arends consulted with Arnold Barnett, the George Eastman professor of management science and a professor of statistics at the MIT Sloan School of Management, to arrive at a jackpot break-even point at which it would be worth buying a lottery ticket.

And what if you win the lottery? Maybe you should consider this possibility in advance. Charles Passy has advice on what to do if you win a lottery jackpot or benefit another type of financial windfall.

The jackpot, at press time, had grown to $1.8 billion. The next draw is Saturday night.

The Moneyist chimes in: I'm about to inherit a lot of money. How do I make sure my husband doesn't get any of it?

Good news for investors who pay for active management

It has been notoriously difficult for active managers of equity funds to beat the performance of the S&P 500 or other broad stock indexes. But Joseph Adinolfi explained how the active managers have improved their relative performance in 2025.

Two broad investment plays:

-- This group of stocks should trounce the S&P 500, according to a veteran money manager

-- How to invest in the cheapest sector of the stock market for long-term gains

Market warnings

With all the bullish sentiment and record highs being set by the S&P 500 as investors expect the Federal Open Market Committee to cut interest rates, trading action has underscored some warnings for investors.

Christine Idzelis interviewed Roger Hallam, global head of rates at Vanguard, who told "a tale of two bond markets," and indications of economic difficulties ahead.

Mark Hulbert shared more warnings about the bond and stock markets:

-- Treasury bonds aren't the safe haven they've been in the past - and taxpayers will pay a price

-- Denial is driving the stock market higher - but what's coming next can't be ignored

Partisanship and the Federal Reserve

President Trump has taken the unusual step of naming 11 candidates he might select to nominate to lead the Federal Reserve when Jerome Powell's term as Fed chair ends in May.

Victor Reklaitis listed the candidates and interviewed several experts, including former Fed vice chair Alan Blinder, to provide a preview of the Senate confirmation process next year.

How to become a trillionaire

Tesla's stock was down 16% for 2025 through Sept. 4, the same day that the company's board of directors said it was "imperative to retain and motivate our extraordinary talent," beginning with CEO Elon Musk.

On Thursday, Tesla Inc.'s $(TSLA)$ board of directors announced a new compensation package for CEO Elon Musk. The board requested approval from shareholders for the issuance of up to 423.7 million in new Tesla shares to Musk, provided the company hits certain milestones. Tomi Kilgore spelled out how the new pay package could turn Musk into the world's first trillionaire.

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-Philip van Doorn

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September 05, 2025 13:08 ET (17:08 GMT)

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