The artificial intelligence trade got tougher in 2025. While a significant capital expenditure cycle and earnings growth from the world’s biggest tech companies supported the market’s rally to record heights — with the S & P 500 to jumping more than 17% and the Nasdaq Composite gaining 22% year to date — the easy gains are over. A bifurcation emerged in the latter half of the year as fears of elevated valuations, macroeconomic headwinds and an emerging AI bubble took the reins, leading to volatile trading periods. Along with this came several new investment areas, with some new winners and surprising laggards. Among the “Magnificent Seven,” Alphabet and Nvidia came out on top, while Amazon and Apple underperformed. Investors paid more attention to companies supporting the buildout of AI infrastructure and are looking to see more tangible results from the technology in the year ahead. “In 2025, we saw valuation re-rates of key enablers ranging from component suppliers, EMS firms, and accelerator competitors, while NVIDIA gave up its premium relative to historical valuation,” Stifel analyst Tore Svanberg wrote this week . “In 2026, as hyperscaler clusters scale toward deploying 100k+ accelerators, the bottlenecks are more decisively shifting to power density and connectivity.” A look at five of the biggest AI trends that took the market by storm this year can help investors consider what might be ahead in 2026. Google shakes up the AI race At the start of the year, Google-parent Alphabet was an underdog in AI — or so investors thought. That thesis has been flipped on its head, prompting OpenAI Chief Executive Sam Altman to declare a “code red” earlier this month to improve ChatGPT in the face of increasing competition. The successful launches of Google’s Gemini 3 model and Nano Banana Pro led to a surge in users per month, boosting investor sentiment. AI Overviews, a feature that uses Gemini to provide AI-powered information at the top of Google Search results, has also grown, reaching 2 billion users every month as of Nov. 18. The Street was also enthused by Google Cloud’s record third-quarter operating margins and a favorable ruling in its search antitrust case in early September. The buzz around its expanding tensor processing unit, or TPU, business was also favorable, with Alphabet’s stock reflecting the bullish sentiment. Shares are up 66% this year, making it the leader among the Magnificant Seven stocks. The turnabout has put a halo around its longtime chip partner Broadcom , which has rallied more than 50%, while proxies for the private OpenAI — Nvidia and Microsoft — have underperformed. To be sure, ChatGPT remains the dominant chatbot in terms of user numbers as of the fall, according to metrics provided by OpenAI and Google. TD Cowen estimates that ChatGPT will have 450 million daily average users by end of 2025. AI infrastructure makers win big Western Digital and Seagate Technology didn’t dominate headlines like Alphabet, but the stocks rank among the top five performers in the S & P 500 this year. Big wins from AI infrastructure stocks and chip equipment makers helped make the broad-market index’s information tech group its leading performer in 2025. Hard disk drive manufacturer Western Digital topped the list, with a more than 290% jump year to date. The gain, which came on the back of the boom in AI data center construction and the spinoff of its SanDisk flash memory business, was a big turnaround for the stock. After the Trump administration’s tariffs sparked a market sell-off in April, Western Digital was trading at a two-year low. Micron Technology shares are up more than 228% year to date. Investors have piled behind the memory chipmaker as demand soars. Micron said it expects the total addressable market for high-bandwidth memory to hit $100 billion by 2028, reflecting a 40% compound annual growth rate. Seagate’s another AI data center play, as the company makes mass-capacity data storage products for enterprise and cloud customers. Shares have rallied roughly 227% this year through Tuesday’s close. The AI-ification of shopping Investors wanting proof of AI’s real-world applications may want to turn their gaze to the checkout line. “Agentic commerce is on the horizon and we believe is set to be the next substantial GenAI enabled unlock,” Morgan Stanley wrote, naming Amazon , Ebay , Wayfair and Walmart among the biggest beneficiaries of AI shopping agents heading into next year. According to the firm, agentic AI can accelerate customer acquisition and e-commerce growth for large retailers such as Wayfair and Walmart that have strong physical supply chains, competitive scale and access to significant amounts of consumer data. AI has also benefited grocery delivery platforms DoorDash and Instacart . DoorDash’s shares are up 40% this year, reflecting this enthusiasm. The delivery service has integrated grocery shopping directly into ChatGPT through a partnership with OpenAI, which has made some analysts bullish heading into 2026. Citi recently named DoorDash a top 2026 stock pick, while Morgan Stanley on Thursday reiterated its overweight rating on the stock, noting that DoorDash was integrated within ChatGPT before giant retailers Walmart and Amazon. Instacart has similarly launched its app in ChatGPT to allow users to look for groceries, build their cart, and check out seamlessly through the chatbot’s Instant Checkout function. “We see the consumer ‘e-commerce funnel’ evolving to be more conversational, personalized, interactive … with a personal shopping agent that is always on. Searching for difficult to find items, suggestions on pairing groups of items, real time and continuous price comparison, and automated recurring purchases (like groceries) are set to become your personal digital shopping agent’s tasks … that will further increase the consumer value and utility of e-commerce,” Morgan Stanley analysts wrote. ‘Physical AI’ gets real Investments into early-stage technology — think humanoid robots, self-driving cars, space-based data centers — soared this year, reflecting a broader belief that the next wave of AI innovation will be physical as well as digital. Alphabet-owned Waymo expanded commercial robotaxi operations this year and will bring ride-hailing operations to more than 20 additional cities in 2026, making it the clear leader in the space. Amazon’s Zoox robotaxi unit also has plans to scale. Enthusiasm for Tesla ‘s aspirations in robotics and self-driving has lifted the stock even though the company has struggled to maintain its dominance in the global electric vehicle market. Shares are up 20% this year. Piper Sandler analyst Alexandra Potter has an overweight rating on Tesla and expects it is “likely very close to removing safety operators from [its] Austin robo-taxi.” Uber and Lyft have partnered with Chinese tech company Baidu to test driverless taxis in the U.K. in 2026. The ride-hailing companies stocks are up 34% and 52%, respectively, as of Tuesday’s close. More recently, AI companies are looking to space, paving the way for new investment opportunities. When OpenAI’s Altman expressed interest in acquiring or partnering with a rocket company to compete with SpaceX in early December, the talk fueled double-digit gains. Space could be an answer to AI’s cooling and power problems, and Nvidia-backed startup Starcloud proved it could train a large language model outside the Earth’s atmosphere. Shares of aerospace companies EchoStar and AST SpaceMobile have jumped more than 360% and 300%, respectively, year to date, while Planet Labs is up a whopping 413%. Rocket Lab has tripled. Robotic innovation also sped up this year, driven by advances in AI algorithms, hardware efficiency improved sensor technology, and compute power. While humanoid robots have yet to become a mainstream reality, companies such as Agility Robotics, Unitree Robotics, UBTech and Figure AI are deploying robots in factories to aid with supply chain processes. Amazon is also rapidly deploying robots across its warehouses with reported efforts to cut labor costs, improve delivery times and lower costs for customers. Tech giants power a private market boom, fueling 2026 deal market Is a blockbuster IPO market ahead in 2026? Startups have been staying private longer due to access to alternative investment sources and lighter regulatory pressures. But SpaceX recently confirmed plans to go public in 2026, and it is expected to be the largest IPO ever. OpenAI, Anthropic, Anduril are other high-flying candidates for the public markets. OpenAI is considering filing to go public as soon as the second half of 2026, Reuters reported in late October , citing people familiar with the matter. “The private company tail is wagging the public company dog. Rumors of OpenAI raising capital have increased confidence in the broader AI trade,” Gene Munster wrote Monday in a post on X.
https://www.cnbc.com/2025/12/24/the-blowout-ai-trades-that-surprised-wall-street-in-2025.html
