As of this writing, the S&P 500 is up roughly 10% year-to-date and nearly 30% over the past twelve months. These gains have come despite significant headwinds: war in the Middle East, volatility in oil markets, slow or stagnant GDP growth, persistent inflation, and a soft labour market. The single most convincing explanation for the market’s resilience is the rapid adoption and commercial impact of artificial intelligence (AI).
This is not the first time AI has had an outsized influence on equity markets. In 2022, the S&P 500 posted its worst performance in more than a decade, finishing the year down nearly 20%—one of its steepest annual declines on record. The combination of the pandemic’s economic shock and aggressive interest-rate increases affected virtually every sector, with technology companies—led by the likes of Apple, Alphabet, Amazon, Meta, Nvidia and Tesla, often referred to as the Magnificent 7—suffering the biggest hits. Yet the launch of ChatGPT by OpenAI on November 30, 2022, proved to be a watershed moment: within months it became clear that generative AI could reshape work, productivity and many everyday activities.
Throughout 2023, the Magnificent 7 and other large-cap technology firms—especially those involved in designing, manufacturing and deploying the specialized chips that power generative AI—drove a powerful market rebound. The S&P 500 returned nearly 27% that year, erasing much of the prior year’s damage. Corporate leaders across industries have compared the practical arrival of AI to historic transformations like the Industrial Revolution, and so far those comparisons have been grounded in observable change: AI is already altering how companies operate and how people interact with technology.
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About a year and a half ago, during a conversation with an investor, I had a clear realization: AI could be one of the most significant wealth-creation opportunities for individual investors in modern history—on par with, or possibly exceeding, the economic impact of the automobile or the internet. For investors seeking growth, understanding AI as a long-term, structural trend is essential. Those who recognized this early have benefited substantially.
Over the last several years, AI-related stocks have become central to many portfolios. Semiconductors—initially led by Nvidia—have been among the biggest contributors to market returns. As AI adoption broadens, the roster of companies tied to AI grows beyond chip designers to include equipment manufacturers and data storage firms. Companies such as Lam Research produce the complex tools chip makers need, while SanDisk and Western Digital supply crucial memory and storage solutions that support AI workloads.
Today AI-linked stocks account for a notable portion of market capitalization within major indexes. Information technology, tightly connected to AI development and deployment, was responsible for a large share of last year’s gains in the S&P 500. Internationally, semiconductor firms play a similarly outsized role: Taiwan Semiconductor Manufacturing Company represents a significant share of Taiwan’s benchmark index, while Samsung and SK Hynix compose a record portion of South Korea’s KOSPI, largely because of demand for advanced memory chips used in AI systems. These concentrations have helped elevate several Asian markets in global rankings.
Independent research and industry surveys show rapid enterprise adoption of generative AI. A large majority of organizations now use generative AI in at least one business function, and many are experimenting with AI agents and automation. Those data points reinforce the conclusion that AI is not a passing trend but a durable technological shift.
If you have not yet allocated to AI exposure, consider doing so thoughtfully. Start with disciplined research: learn the AI ecosystem, understand which companies supply hardware, software and services, and evaluate their earnings potential and valuation metrics. Pay attention to fundamentals like price-to-earnings ratios and growth expectations—metrics that help distinguish attractive opportunities from overpriced hype.
Expect volatility. Even market leaders can experience sharp rallies and pullbacks; Nvidia’s stock, for example, surged dramatically in recent years but also endured periods of flat performance and meaningful declines from highs, even while reporting strong revenues. That pattern underscores the importance of active risk management.
Practical steps for investors: set target prices for positions and take profits when those targets are reached, rebalance periodically, and avoid an all-or-nothing approach. Diversification remains the cornerstone of prudent investing. While AI represents a transformative, generational opportunity, it should form part of a diversified portfolio that balances growth potential with defensive holdings and different industry exposures.
This information was prepared by Allan Small, Senior Investment Advisor at iA Private Wealth Inc. The opinions expressed are those of the advisor and do not necessarily reflect the views of iA Private Wealth Inc. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.
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