The stock market’s persistence this year has been remarkable. The rally began late last year. That’s when it became apparent the Fed’s approach to driving down inflation was having the desired effect.

On October 31, the S&P 500 Index closed beneath 4,200. Five months later it was above 5,200. Wall Street anticipated an interest rate cut by the Fed during the second quarter of this year.

Since then, it has been slow going. Over the next two months the index struggled to gain momentum as inflation leveled off. Nevertheless, the index rose above 5,300 in May to reach a new all-time high.

That is good news for index investors. At the start of this year, the S&P 500 Index had gained no ground over the previous two years. But thanks to its strong performance since then, index investors are now solidly in the black.

Leader of the Pack

The stock market’s recent rise is largely due to Wall Street’s euphoria over artificial intelligence (AI). There is no better example of that than AI memory device manufacturer NVIDIA (NSDQ: NVDA). I added NVDA to the Personal Finance Growth Portfolio in October 2022 while it was trading around $115. Since then, it has appreciated 870%.

On May 23, NVDA traded above $1,000 to reach a new all-time high the day after it released its fiscal 2025 Q1 results. Those numbers were outstanding, including a 262% increase in revenue on a year-over-year basis and a 461% rise in GAAP earnings per share.

As a result of its massive growth, NVIDIA is now the third most valuable publicly traded company in the world with a market cap of $2.6 trillion. It trails only Microsoft (NSDQ: MSFT) and Apple (NSDQ: AAPL) in that respect and ranks above Amazon (NSDQ: AMZN) and Alphabet (NSDQ: GOOGL).

Billion Dollar Vertical Markets

The five companies listed above are part of the so-called “Magnificent 7” that dominates the stock market. The other two are Meta Platforms (NSDQ: META) and Tesla (NSDQ: TSLA).

All those companies have significant exposure to AI. However, NVIDIA is the only one that can be regarded as a pure play on AI, which is why it has performed better than the others during the past year.

That trend may stay in place for a while. NVIDIA founder and CEO, Jensen Huang, made that clear in his comments accompanying the most recent quarterly results:

“Beyond cloud service providers, generative AI has expanded to consumer internet companies, and enterprise, sovereign AI, automotive and healthcare customers, creating multiple multibillion-dollar vertical markets.”

Those words may have been overlooked in the excitement about the numbers, but they have profound implications for the stock market.

Improvements in Profitability

The “multibillion-dollar vertical markets” referenced in Huang’s comments are not only an opportunity for NVIDIA. The advancements in productivity and efficiency enabled by NVIDIA’s devices will help improve the profitability of its customers in those vertical markets.

For example, General Motors (NYSE: GM) raised its guidance for this year when it released its fiscal 2024 Q1 results in April. In a letter to shareholders, the company’s CEO, Mary Barra, cited “sequential and year-over-year improvements in profitability” in its electric vehicle (EV) business thanks in large part to efficiencies driven by AI.

That same dynamic is at work throughout the economy. Although the Magnificent 7 are the initial beneficiaries of the AI trend, it won’t be long until everyone else gets in the action, too.

That is why I believe it would be a mistake to “sell in May and go away” this year. The AI party may just be getting started, and it may not be over for a long time.

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