Palantir Stock Jumps. Why the AI Trade Is So Back.

Alex Karp, CEO of Palantir Technologies. (Kevin Dietsch/Getty Images)

Key Points

• The Nasdaq Composite rose 2.2% on Monday due to anticipated end of the government shutdown.
• Palantir, an AI software provider, increased over 9% on Monday after a 15% drop from its peak.
• Microsoft and Meta Platforms plan to increase capital investments in data centers, indicating continued demand for AI infrastructure.

Artificial-intelligence stocks like Palantir are popping, and for good reason.

The technology-heavy Nasdaq Composite was up 2.2% Monday after sliding 4% from a record high hit almost two weeks ago through Friday’s close.

Behind the buying is news that the Senate is pushing forward legislation that would end the U.S. government shutdown. That means government workers can be paid, and all kinds of federal spending can continue.

Both are positives for the economy. This boosts the entire market, but AI stocks lost the most last week, so they have the most to gain back. High-growth, high-volatility stocks took a hit in general, and are soaring as well.

Palantir, which is something of a poster child for the AI trade, fell 15% from its peak to its bottom Thursday. The slide came even though its third-quarter earnings beat analysts expectations and management raised its financial forecasts for the fourth quarter.

The overarching reason the stock dropped was that its outsize valuation already reflected high profit growth for years to come. In order for the earnings and guidance to justify the valuation, the company would had to have shown even more impressive numbers. The stock, up more than elevenfold for the five years coming into earnings, apparently had nowhere to go but lower.

Palantir, which provides AI-enhanced software to the government to identify threats and to businesses to organize their data and make decisions, was up over 9% on Monday. Part of the reason is the likely end of the government shutdown.

But more important, investors are picking up shares at a slightly lower valuation. The company probably has a number of years of profit growth ahead. Nobody wants to miss that ride.

That is exactly where the rest of the Big Tech complex is at.

AppLovin, which uses AI in the advertising software it sells to businesses, was up more than 5% at one point. Shares of Nvidia , Advanced Micro Devices, and Micron Technology, which all make AI chips used for AI, were all up at least 5%. Stock in Broadcom, a business with similar exposure, gained just over 2%.

That AI stocks are staging a rebound isn’t a surprise. While there is a lingering fear of a bubble—software companies may slow down their investments in data centers after they have built enough of them—recent evidence is to the contrary.

Microsoft said on its third-quarter earnings call that it will increase its capital investments—think money spent on data centers—even faster in fiscal 2026. Meta Platforms said it would continue to increase its spending at percentage rates well into the double digits.

The takeaway is that both software and internet companies are increasing their AI capabilities and that chip makers will see greater demand as more data centers are built.

“If you saw cracks in spending on data centers, it would make these rebounds significantly more difficult,” says Evan Schlossman, an analyst at Suro Capital.

There are no cracks right now. Rally on.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com