The Nasdaq 100 looked like it was in trouble a few weeks ago. It had fallen 11% in a month, enough for Wall Street to call it a technical correction, after President Donald Trump's tariffs set off a selloff.
Then the market reversed hard.
The move did not come from thin air. Investors gained confidence after second-quarter results showed big AI spending is starting to produce returns for some major firms.
The rebound was broad, with semiconductor, software, and hyperscaler stocks all moving higher. Hyperscalers are the cloud-computing giants, like Microsoft and Google, that pour money into data centers.
The winners show how much energy came back into the market. Sandisk Corp. gained 41%, Palantir Technologies Inc. added 32%, and Microsoft Corp. rose 26%, while Alphabet Inc. and Nvidia Corp. each advanced 11%.
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The earlier selloff had created a pile-up. Hedge funds were forced to cut risk, and many had to cover short positions, which means buying back shares they had borrowed, expecting them to fall.
When prices turned, those forced buyers became a powerful force.
The group of megacap names known as the Magnificent Seven was bought as a group. Yet overall tech positioning remains subdued, which suggests there is room for more buying if confidence holds.
This is not a "buy everything with a chip" rally. Companies with clear AI revenue are being rewarded, while companies with less obvious AI payoffs are getting sold.
David Rainville, lead manager of the Sycomore Sustainable Tech fund, says the split is healthy. "The days where you could short the capex spenders, that is the hyperscalers, and go long the capex receivers are over, and I think that's a good thing."
"It's not a binary trade anymore," he said.
One example shows the gap. From the July 29 close to the Aug. 4 close, Nebius Group NV rose 52% while Apple Inc. fell 8.5%, a 61-percentage-point difference in a broad AI-linked universe.
Societe Generale strategist Roland Kaloyan says that kind of split creates a new problem. The AI trade now has a lot of dispersion within semiconductors and hyperscalers, which forces stock pickers to make tough choices.
This level of churn matters beyond trading desks. If you own a broad index fund, a few giant tech names still move the whole thing.
Deutsche Bank strategists, including Parag Thatte, said on August 5, 2026 that the rotation into tech has more room to run. They noted that such episodes have historically beaten the market by 20 percentage points on average, and labeled this the fifth move of that kind in three years.
The bank also favors hyperscalers, with their performance versus the S&P 500 near its worst level in three years. Even after this four-day burst, that gap suggests the biggest AI spenders may still have space to catch up.
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