Is the AI Trade Finally Growing Up? What This Week’s Earnings Tell Us
Markets have been riding a wave of AI enthusiasm for over a year now, but this week’s earnings reports suggest something is shifting. Investors aren’t abandoning AI—they’re getting more demanding. Let’s break down what happened, why it matters, and where the opportunities might be hiding.
Q: Are AI stocks losing their luster, or are investors just getting selective?
A: Both, and that’s actually healthy.
NVIDIA just posted fiscal 2027 Q1 revenue of $81 billion—up 85% year-over-year—with net income hitting $58 billion. Gross margins topped 74%. The company raised its dividend 25-fold to $1 per share and authorized an $80 billion share buyback. On paper, this is a juggernaut.
But here’s the nuance: NVIDIA slipped on the day despite those blowout numbers. The stock has fallen seven of the last twelve times in the five trading days following earnings, even though it climbed eight of eleven times over the subsequent six months. The market is telling us something important—price matters even when fundamentals are spectacular.
Meanwhile, the broader market rotated. Intel and AMD saw increased institutional interest as capital shifted from pure-play AI names toward legacy semiconductor manufacturers. Meta laid off 8,000 employees (10% of its workforce) to offset AI investment, and Cloudflare cut 20% of its staff, with CEO Matthew Prince saying AI was making “measurers” obsolete. Even Zoom’s AI Companion monthly active users jumped 184% year-over-year, but the market rewarded the efficiency gains more than the growth story.
Q: Where are investors putting their money instead of chasing AI hype?
A: Into businesses that are actually printing cash right now.
Ross Stores is a perfect example. Q1 sales hit $6 billion—up 21% year-over-year—with comparable-store sales up 17%. Operating margins expanded 120 basis points to 13.4%, and the company raised its full-year EPS guidance to $7.50-$7.74. That’s 13-17% growth from a company trading at a reasonable multiple. Ross added 13 new Ross stores and 4 new dd’s Discount locations, with plans for 110 new stores this year.
TJX Companies followed a similar pattern. Q1 revenue reached $14.32 billion—up 9%—with gross margins expanding 180 basis points and GAAP earnings surging 2,900 basis points. Management raised guidance despite a slightly soft forecast, signaling confidence in underlying demand.
Target also impressed with 6.7% revenue growth and a 31.5% jump in adjusted EPS. The company raised both revenue and earnings forecasts above consensus, citing continued traffic and operational gains.
These aren’t sexy names. They don’t have AI buzzwords in their earnings calls. But they’re showing that real consumer spending is still happening, and the market is rewarding execution over narrative.
Q: What about the shipping and energy plays—any opportunities there?
A: The Strait of Hormuz situation is creating some compelling setups.
The blockade has constrained global fleet capacity, sending TCE rates for Dorian LPG up 80% year-over-year to $63,615 per day. The company declared a $1-per-share irregular dividend and sold a vessel for $81.9 million. CMB.TECH reported 813% year-over-year net income growth to $368.8 million on $519.6 million revenue, driven by spot rate capture and a $3.26 billion 10-year contract backlog.
ZIM Integrated Shipping presents a different story—a potential all-cash acquisition at $35 per share, representing roughly a 40% arbitrage opportunity. Regulatory approval is the key risk, but the discounted price reflects that uncertainty.
On the energy side, Applied Digital announced a new 15-year lease with a hyperscaler valued at roughly $7.5 billion for its Polaris Forge 3 site, adding 300 MW of AI-focused capacity. The deal brings total contracted lease revenue to $31 billion across four campuses, potentially rising to $73 billion with renewals. Hyperscaler capex is projected at $725 billion in 2026, underscoring the massive demand for data-center power.
Q: Is the small-cap vs. large-cap trade still relevant?
A: Yes—and it’s getting stronger.
The Russell 2000 has gained over 13% year-to-date versus just over 8% for the S&P 500. The iShares Core S&P Small-Cap ETF (IJR) with $101.5 billion in assets saw $849 million in Q1 inflows after institutional selling in Q4 2025. The Vanguard Small-Cap ETF (VB) gained about 10% year-to-date with $28 billion in inflows over the past year, including $24 billion in Q4 2025.
Coherent (COHR), a holding in VB, has gained 84% year-to-date as an AI infrastructure play. Small caps are benefiting from valuation discounts compared to tech giants and better insulation from geopolitical risks. This rotation suggests institutional investors are looking for cheaper entry points while still maintaining exposure to growth themes.
Q: What about quantum computing—any real progress or just hype?
A: There’s genuine momentum here.
IBM announced a $1 billion quantum-foundry investment in Albany, NY, with an additional $1 billion from the U.S. Commerce Department under the CHIPS Act. The facility will use IBM’s 300mm wafer process and could serve both IBM’s own quantum chips and those of other pure-play quantum companies. IBM shares rallied over 12% on the news.
IonQ posted record Q1 revenue of $64.7 million, raised its 2026 revenue outlook to $260-$270 million, and increased its backlog to about $470 million. Infleqtion surged 31.49% to $14.70 after signing a $100 million letter of intent with the U.S. Department of Commerce’s CHIPS R&D department. Fellow quantum names IonQ (+12.25%) and Rigetti Computing (+30.57%) also rallied.
Quantum computing remains early-stage, but the combination of government funding, commercial partnerships, and improving revenue visibility suggests this isn’t just speculative anymore.
Q: What should investors actually do with all this information?
A: Three principles to keep in mind.
First, separate the signal from the noise. NVIDIA’s earnings were phenomenal, but the stock’s reaction tells us that valuation matters even when growth is exceptional. The market fell seven of twelve times after earnings, but climbed eight of eleven times over the following six months. Post-earnings pullbacks may offer entry points, but only if you have a thesis that survives lower-than-expected growth.
Second, follow the money. Ross, TJX, and Target are all seeing real revenue growth and margin expansion. These aren’t narrative-driven stocks—they’re businesses generating cash. Meanwhile, the rotation into small caps and legacy semiconductors suggests institutions are finding value away from the most expensive names.
Third, watch for execution risks in AI plays. Cloudflare’s layoffs, Meta’s workforce reduction, and Intuit’s 17% headcount cut (3,000 jobs) all point to companies trying to improve margins as AI investments ramp. The question is whether AI adoption will deliver the productivity gains needed to justify these structural changes. Until we see the results, these are watchlist items, not sure things.
Market Snapshot
S&P 500: 7,445.72 (+0.17%)
Nasdaq: 26,293.10 (+0.09%)
Dow Jones: 50,285.66 (+0.55%)
Oil prices fell on U.S.-Iran negotiation reports, easing inflation concerns
Stocks to Watch
- NVIDIA (NVDA) — Post-earnings setup; 26x forward earnings; 8 of 11 prior six-month periods positive after pullbacks
- Ross Stores (ROST) — 21% YoY sales growth, expanding margins, raised guidance
- TJX Companies (TJX) — Margin expansion across the board, raised guidance
- Applied Digital (APLD) — $31 billion in contracted lease revenue, $725B hyperscaler capex backdrop
- Dorian LPG (LPG) — TCE rates up 80% YoY, irregular dividend declared
- IBM (IBM) — $2B quantum-foundry investment, 12%+ rally on quantum news
- ZIM Integrated Shipping (ZIM) — Potential $35 all-cash acquisition, ~40% upside
Bottom Line
The AI trade isn’t dying—it’s maturing. Investors are moving from “buy everything with AI in the name” to “show me the revenue, show me the margin, show me the path to profitability.” That’s not a bearish signal; it’s a sign of a healthier market. The companies that can deliver on their AI promises while maintaining financial discipline will be rewarded. The ones that can’t will get left behind.
For now, the most compelling opportunities are in businesses that are proving they can grow earnings today—not just promise growth tomorrow. Keep your eyes on the fundamentals, and let the market’s noise fade into the background.