The AI trade has made a powerful comeback, paired with continuously rising earnings expectations, propelling the Nasdaq 100 Index to a record closing high on Tuesday. Storage chip stocks led the entire market, with NAND flash accelerating its transition from a commodity into a core component of AI infrastructure.
After the launch of the Muse AI model from Meta Platforms, Inc. quickly climbed to the top of the free charts on Apple's App Store, it ignited optimistic sentiment regarding AI demand. The Nasdaq 100 rose 0.8% on Tuesday to reach an all-time closing high, breaking through the early June peak during the session. The Nasdaq Composite also set fresh records for two consecutive days, with Monday's single-day gain of 2.3% marking its best performance in seven weeks. Meanwhile, the S&P 500 edged slightly lower, highlighting a clear market divergence.
The storage sector emerged as the biggest winner of this rally. Sandisk surged 6.8% in a single day, Seagate Technology advanced 4.8%, and Western Digital climbed 3.7%. Falling oil prices and reports of progress in US-China AI negotiations further provided upward momentum for tech stocks.
FOMO Sentiment Reignites, Tech Stocks "All Jump Back Into the Pool"
The core driver of this rebound lies in the market's repricing of the AI trade. Emmanuel Cau, Chief European Equity Strategist at Barclays, stated that "AI FOMO (fear of missing out) is roaring back with strength," pointing out that the current rise is driven by "a combination of multiple factors," including lower oil prices and reports related to US-China AI talks. He also emphasized that after the deleveraging in June, the positioning structure in the tech sector has become "notably cleaner," and this rally is unfolding on that healthier foundation.
Michael Zigmont, Co-Head of Trading at Visdom Investment Group, described Monday's trading as "the moment when everyone dives back into the pool," suggesting that the current trend "looks like the starting point of a new momentum run for tech stocks."
Data from Bespoke Investment Group shows that when the Nasdaq Composite rises more than 2% in a single day while simultaneously setting a new high, the average return over the following month has historically been 3.7%. Returns over three-month, six-month, and one-year horizons also tend to beat averages. The Nasdaq's additional 0.5% gain on Tuesday further confirms this historical pattern.
Rising Earnings Expectations Open a Window for Valuation Reset
Supporting this rally is not just sentiment; fundamentals are also providing a solid underpinning. Mona Mahajan, Investment Strategy Director at Edward Jones, said the AI trade "likely still has sustained momentum into next year," backed by massive capital expenditure on AI infrastructure, while the widespread penetration of AI at the productivity level will further broaden the scope of beneficiaries.
Yardeni Research noted in a report that "investors have noticed that analysts are upgrading earnings expectations faster than stock prices are rising," which could prompt the market to reassess valuations of certain large-cap tech and semiconductor stocks.
Mahajan also stated that the Federal Reserve's rate move this month is more of a "mid-cycle adjustment" in policy rates rather than the start of an aggressive tightening cycle. Combined with the Atlanta Fed's GDPNow model forecasting third-quarter real GDP annualized growth of 5.1% (a sharp jump from the second quarter's 1.5%), the macro foundation for corporate earnings expansion remains solid. The upcoming third-quarter earnings season could serve as the next catalyst.
NAND Repricing, Storage Becomes a Key Component
The strong performance of the storage sector reflects the market's renewed recognition of NAND flash's strategic value. Rosenblatt analyst Kevin Cassidy issued a research note on Monday, initiating coverage on Sandisk with a Buy rating. His core thesis: AI systems are "creating opportunities" to reposition NAND from a traditional commodity storage product into "a more system-critical component of AI infrastructure."
Cassidy pointed out that traditional NAND demand has been driven by density improvements and lower unit costs, but large-scale AI models and inference workloads "increasingly prioritize density, performance, durability, and supply certainty over the lowest absolute price." This shift in demand structure fundamentally changes NAND's pricing logic.
On the technology front, the BiCS8 and BiCS10 architectures co-developed by Sandisk and Japan's Kioxia achieve higher density through vertically stacked memory cells. Cassidy believes this will support Sandisk in maintaining "dual advantages in performance and cost" within the large-scale AI storage market. He projects Sandisk's data center revenue to reach $21.7 billion in fiscal 2027 and further rise to $28.6 billion in fiscal 2028. He also set a price target of $2,400, implying roughly 30% upside from Tuesday's closing price of $1,887.04.
Cassidy also highlighted that Sandisk has signed multi-year commercial agreements with eight major NAND customers, allowing them to secure supply at locked-in prices. He believes these agreements cover a significant portion of Sandisk's capacity and "could improve demand visibility and reduce the historical volatility of NAND cycles," thereby providing more stable support for the company's valuation.
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