Wall Street closed out the second quarter of the year with a flourish. The S&P 500 rose 18.22% over the period, its best quarterly performance since the post-Covid rebound six years ago. The Nasdaq also posted a spectacular 32% quarter, showing that appetite for tech stocks remains intact despite valuation concerns.

Memory takes over

In the second quarter, the S&P 500's best performers did not come from the usual tech stars like Nvidia or Microsoft. Semiconductor-related names posted the biggest gains.

SanDisk jumped 258%, Micron Technology 242%, Intel 216%, Marvell Technology 201% and AMD 186%.

The move also goes beyond individual stocks. The SOX index, which tracks the major semiconductor names, surged 88%, delivering the best quarter in its history.

AI models keep demanding more computing power, but also more memory, storage and capacity to move data. The larger the models get, the bigger the need for semiconductors.

This dynamic also shows that the S&P 500's performance is no longer driven solely by the Magnificent Seven. S&P 500 earnings growth excluding the Magnificent Seven reached 20.5% in the second quarter.

source: LPL Research, Bloomberg

AI does not create only winners

But while AI infrastructure suppliers are soaring, some software, services or more cyclical industrial groups are being left out of the rally. Intuit was among the quarter's biggest laggards, down 40%. Zoetis fell 39%, Accenture 37% and LyondellBasell nearly 35%.

The market is rewarding companies that can capture investment spending tied to data centers, while punishing those whose model looks more vulnerable.

High expectations

For investors, if the tech giants keep spending heavily on data centers, suppliers of that infrastructure should continue to benefit.

But that logic also sets a high bar for the coming quarters. Consensus forecasts roughly 23% earnings growth in the second quarter for S&P 500 companies, with a very large contribution from tech.  

Memory and storage markets remain cyclical. If prices fall, orders slow, or big cloud customers pause their investment, the rally could stop, or at least slow sharply.