Technology stocks are on fire.
The State Street Technology Select Sector ETF (XLK) jumped by a massive 8.4% last week, lifting the S&P 500 Index by a full 2.4%.
It was a monster week for the stock market, driven almost exclusively by AI infrastructure spending… and the promise of a lot more of it to come.
As I have been saying for months, the S&P 500 cannot sustain a meaningful rally without the tech sector.
That’s just basic math.
Given that tech and tech-adjacent stocks make up about half of the total market cap of the index, as goes tech, so goes the market. And we saw this exact dynamic at play last week…
Outside of tech, the gains were middling at best. Most sectors were flat or down on the week, with the State Street Energy Select Sector ETF (XLE) dropping over 5%.
It’s probably a mistake to read too much into the recent performance of the energy sector, since so much of it has been driven by headlines about the Iran war.
I’ll have more to say on that in a moment, but for now, the takeaway is simple: Tech remains the dominant force driving this market.
Investors see the gargantuan sums being spent on AI infrastructure, and they’re following the money.
Now, we must figure out whether we should do the same…
Key Insights:
- The tech hardware trade is exploding
- But my system suggests caution is warranted.
- Energy had a rough week but continues to rate well.
The Chip Juggernaut Rolls On
I ran my customary screen of the biggest movers in the sector that were also still within 10% of their 52-week highs last week. The idea is to look for solid, market-leading stocks that are getting stronger.
Here’s what I came up with:
Some of the jumps here are so big they look like typos. Datadog (DDOG) and Akamai Technologies (AKAM) were each up over 40%.
Perhaps the most interesting thing about these two is that they aren’t chip stocks.
Most of the buying mania has centered on semiconductors, memory chips and other hardware powering AI servers.
And we certainly have plenty of hardware makers on the list this week, including Micron Technology (MU), Sandisk (SNDK), Advanced Micro Devices (AMD), Intel (INTC), Dell Technologies (DELL) and Qualcomm (QCOM).
On the other hand, Datadog and Akamai are software services companies… a pocket of the market that hasn’t fared well this year due to fears that AI will make many software vendors obsolete.
So, what separates these two from the rest?
It turns out they’re actually riding the AI infrastructure wave.
Datadog helps businesses keep an eye on all their software, servers and apps at once. The company’s security platform essentially offers a giant dashboard for your entire tech system.
It pulls data from hundreds of sources and displays it in one place, making it much easier for tech teams to spot problems before customers even notice.
Importantly, Datadog provides the cloud infrastructure that AI models like OpenAI’s ChatGPT and Anthropic’s Claude run on, and CEO Olivier Pomel recently revealed that the company landed two major hyperscaler customers for training in its superintelligence labs.
Akamai mostly works behind the scenes, operating one of the world’s largest networks of servers spread across the globe. When you visit a website or stream a video, the content gets delivered from a server near you instead of one halfway around the world. That means faster load times and fewer outages.
In some exciting news, Akamai just signed a $1.8 billion deal with Anthropic. That’s all Wall Street needed to know.
So, should you jump on the bandwagon and ride these stocks higher?
My system is recommending caution. Of the nine biggest jumpers, only Micron, AMD and Dell currently rate as “Bullish” on my Green Zone Power Ratings system.
AMD – added to my Tech Titan portfolio in Infinite Momentum Alert on May 1 – is already up 28% as I write this.
And Micron, which has been in the portfolio since June, is up a whopping 514%.
My Infinite Momentum model is designed to be a “relay race,” constantly passing the baton to the 10 stocks my system suggests are best primed to keep sprinting over the next four weeks.
It caught on to the AI infrastructure trend early, and we currently have five out of the 10 open positions sitting on triple-digit gains. If you click here and learn how my system works, you could position yourself to earn multibagger profits as well.
Is Energy’s Run Over?
Let’s get back to energy for a moment.
Energy was the best-performing sector two weeks ago… and now finds itself as the worst performer last week.
It’s not hard to see what is turning this sector into a ping-pong ball. Every bend and twist in the Iran war has an outsized impact on how investors view the sector. And the past few months have been a rollercoaster.
My advice here is simple.
If you’re trying to game the headlines… you’re doing it wrong. Unless you have inside information (which in any event would be illegal to trade on), you’re not going to successfully guess when or how the war ends and what exactly the impact will be on energy stocks.
Don’t play that game.
Instead, follow a system. My Green Zone Power Ratings look beyond the headlines to the core factors that drive stock returns.
So, with that as background, let’s dig into the sector.
I ran my customary screen of the sector’s biggest losers for the week that are still trading within 10% of their 52-week lows. The idea is to find beaten-down gems that look poised to recover.
There’s a lot of “green” here. All but one of the stocks on the list is rated as “Bullish,” and the one outlier – Occidental Petroleum (OXY) – is darn close.
So, while I can’t tell you how or when (or even if!) the Iran war is resolved, I can tell you that my system would view any dips in the energy sector as a worthwhile buying opportunity.
To good profits,
Adam O’Dell
Editor, What My System Says Today
P.S. You don’t want to miss out on this unique opportunity…
Moneyball Economist editor Andrew Zatlin has something special planned for you on May 14 at 3 p.m. Eastern time.
He’s going LIVE for a webinar with hundreds of Moneyball members for a deeper conversation about the markets, the economy, and the trends shaping what comes next.
Plus, he blocked off a full hour for the event so he can go beyond the quick-hit format of his weekly videos and share deeper macro insights and opportunities he’s watching closely right now.
Make sure you tune in — I think you’ll get a lot out of it.