AI semi and memory stocks to continue rallying, Wolfe says By Investing.com

Wolfe Research says mega-cap tech is likely to keep leading the market, citing AI as the dominant theme, solid first-quarter earnings, and capital rotation back into the U.S. The S&P 500's April rebound was highly concentrated: 10 mostly semiconductor and AI-linked names drove roughly 70% of the index's 17.9% return from March 30 to April 30. Alphabet, Nvidia, Amazon, and Broadcom were the largest contributors, reinforcing the breadth-narrowing rally.

Analysis

The market is rewarding the most capital-intensive parts of the AI stack because they convert narrative into visible near-term earnings power: compute demand, pricing discipline, and upgrade cycles. That usually favors NVDA and AVGO first, then the hyperscalers only if investors believe capex is still under-earning versus the revenue they can eventually monetize; otherwise MSFT/AMZN become the “funding sources” for the trade rather than the pure beneficiaries. The second-order winner is memory and networking supply chain leverage, which tends to lag the initial semiconductor move but can compound faster once ordering visibility extends beyond one quarter.

The key risk is that the leadership is becoming self-reinforcing at the same time macro breadth is weak, which makes the tape vulnerable to a single factor unwind rather than a gradual rotation. If rates back up or earnings guidance from the megacaps merely meets rather than beats, the market could rapidly compress the multiple premium on the entire AI complex over a 2-6 week horizon. A weaker global growth backdrop is supportive for U.S. defensives with AI exposure, but it also raises the odds that capex scrutiny becomes more intense into the next earnings cycle.

The consensus is likely underestimating how narrow this leadership can remain if foreign capital keeps re-rating U.S. tech as the only liquid growth venue. That said, the move is probably over-extended in the least differentiated names inside the basket: the trade no longer rewards “AI exposure” broadly, only clear supply bottlenecks or unmistakable monetization. The cleanest setup is to own the infrastructure winners and fade the less leveraged beneficiaries that trade mainly on index flow rather than incremental earnings revision.

Key Decisions for Investors

• Long NVDA vs. long/short basket hedge in AAPL and INTC over the next 4-8 weeks: favor the names with direct pricing power and tighter supply, while reducing exposure to slower-moving AI beneficiaries that are more vulnerable to multiple compression.
• Add AVGO on pullbacks for a 1-3 month trade: it should benefit from the same infrastructure spend as NVDA but with lower headline risk and stronger second-order exposure to networking and custom silicon demand.
• Initiate MSFT covered-call overlay into strength for the next earnings window: the stock should remain a quality compounder, but near-term upside may be capped if capex scrutiny grows faster than monetization evidence.
• Pair trade long NVDA / short AMZN over 1-2 months if you want AI exposure with cleaner operating leverage: NVDA is a direct beneficiary of infrastructure spending, while AMZN is more exposed to investor disappointment if cloud monetization lags capex growth.
• If the index keeps narrowing, use any broad tech rally to trim AAPL exposure and rotate into semis: AAPL is the least convex participant in this basket and is more likely to underperform if the market stops paying for generic mega-cap quality.