The Dow Jones Industrial Average hit the historic 50,000 mark Friday, the S&P 500 ended nearly 2% higher, and Nasdaq soared by 2.18%, as Nvidia and other chipmakers vaulted higher.
Meanwhile, Amazon tumbled after the cloud heavyweight forecast a sharp increase in spending on AI infrastructure.
Amazon fell after saying it planned a more than 50% jump in capital expenditures this year, intensifying a race to dominate AI technology and following a similar announcement from Alphabet on Wednesday.
However, chip stocks rallied on expectations they would benefit from increased spending on AI data centers by Amazon and Alphabet.
Nvidia, Advanced Micro Devices and Broadcom all surged and the PHLX semiconductor index also made big gains.
Friday's rallies in the S&P 500 and the Nasdaq followed three straight days of losses marked by worries about AI.
Several software companies were hit this week by concerns that AI could create more competition and hurt their margins, while investors have also fretted about elevated valuations following years of steep gains in AI-related stocks.
"This trade has been volatile, and there have been selloffs at times, but I think there's enough evidence that there's real demand for AI products, real promise with what they can do, and a necessity of a lot of spending to get there," said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky.
"So when there's this kind of a selloff, I think there's a floor where there's going to be a certain set of investors that steps in and starts buying these names."
Software and data services companies rebounded from recent losses.
CrowdStrike and Palantir both rose.
The S&P 500 Software & Services index ended seven straight sessions of losses, although its weekly drop of around 8% was its poorest weekly performance since March 2020.
The Dow outperformed the S&P 500 and Nasdaq this week, reflecting a recent diversification by investors away from tech stocks that have led Wall Street in recent years and toward companies that have missed out on those big gains.
Reflecting the same trend, the Russell 2000 index of small-cap companies also rallied this week.
According to preliminary data, the S&P 500 gained 131.87 points, or 1.94%, to end at 6,930.27 points, while the Nasdaq Composite gained 485.62 points, or 2.18%, to 23,026.20. The Dow Jones Industrial Average rose 1,209.81 points, or 2.47%, to 50,118.53.
The S&P 500 was about 1% below its record-high close set last week, and the Nasdaq was down about 4% from its record-high close last October.
The CBOE volatility index, Wall Street's fear gauge, dropped for the first time in three days.
Over half of S&P 500 companies have reported their quarterly results, and roughly 80% topped analysts' expectations, according to LSEG data, well above the typical beat rate of about 67%.
Molina Healthcare slumped after the health insurer forecast 2026 profit at less than half of Wall Street's expectations.
Roblox rallied after the video game platform projected fiscal 2026 bookings above estimates
Reddit fell, even after the social media platform forecast first-quarter revenue above analysts' estimates.
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