New York — 5:05 p.m. ET, Friday, December 26, 2025. U.S. markets concluded a light post-Christmas session with the “AI trade” reflecting a familiar narrative: significant opportunity coupled with substantial spending, while questions about profit distribution loom large as 2026 approaches.
Wall Street ended the session nearly flat, with the details vital for AI stocks. Notably, Nvidia saw an uptick following its announcement of a licensing agreement for inference chip technology from Groq. Meanwhile, investors grappled with a range of factors, including expectations of rate cuts, capital spending plans, and indications of a rotation away from the heavily populated mega-cap tech stocks.
The Dow fell 0.04% to 48,710.97, the S&P 500 decreased by 0.03% to 6,929.94, and the Nasdaq dipped 0.09% to 23,593.10, according to Reuters. Market strategists noted that the market remains within the closely monitored “Santa Claus rally” window, which encompasses the last five trading days of the year and the first two of the next. Carson Group’s chief market strategist Ryan Detrick remarked that the market appears to be “catching our breath” following a robust run, indicating a potential upward bias during this seasonal period, albeit with warnings of volatility in 2026.
Looking ahead to next week, Reuters’ “Week Ahead” preview highlighted two catalysts potentially influencing AI stock valuations: the release of Fed minutes from the December 9-10 meeting, expected on Tuesday, and ongoing scrutiny surrounding rate-cut timing and leadership uncertainty at the Federal Reserve. Such factors can significantly amplify valuation fluctuations for long-duration growth stocks, including many AI firms.
The focus on AI stocks remains keen, particularly as they are still heavily priced on long-term growth assumptions. Even minor adjustments in discount rates, or expectations of a “higher for longer” interest rate environment, can swiftly impact the sector.
Market Dynamics and AI Developments
The standout AI news from the close involves Nvidia’s agreement to license inference chip technology from Groq. This move includes the hiring of Groq’s founder and CEO Jonathan Ross along with other executives. Groq confirmed it will maintain its independent operations under new leadership from Simon Edwards, dispelling earlier speculation regarding a complete acquisition.
Investors are particularly attentive to the inference segment of AI, which deals with the day-to-day deployment of AI models to end-users. Although Nvidia currently leads in training workloads, the inference space has emerged as a battleground where competitors, including AMD and startups like Groq and Cerebras, are challenging its dominance.
In a recent note, Bernstein analyst Stacy Rasgon cautioned that antitrust scrutiny poses a risk in the prevailing trend of “buying talent + licensing tech” without formal acquisitions—a strategy increasingly employed by Big Tech. Following the news, Nvidia’s stock rose about 1%, closing near $190 per share.
As the year draws to a close, the essential question remains whether the ongoing AI investment will yield profitable returns. Analysts predict that while S&P 500 earnings could grow more than 15% in 2026, the gap between the performance of the “Magnificent Seven” tech stocks and the broader market is likely to narrow.
Strategists like Sam Stovall (CFRA) are advocating for a variety of positive catalysts to sustain market momentum into 2026, with targets for the S&P 500 hovering around 7,400. Some forecasts even suggest 10%+ gains, with Deutsche Bank projecting an S&P target of 8,000.
However, a cautionary note was raised in a Reuters commentary, indicating that while the AI boom has been a market stabilizer, it also makes the market vulnerable to adverse shifts in confidence regarding AI spending. The potential for an economic downturn or a dip in AI investment could reverse current trends.
In the semiconductor sector, Broadcom reported a strong backlog related to AI but warned of margin pressures stemming from an increased mix of AI revenue. Similarly, AMD is preparing for significant competition with its MI400 series data-center chips scheduled for release in 2026, even as regulatory challenges in China loom.
AI infrastructure demands are not limited to chips; TSMC recently revised its revenue guidance upward, attributing the change to continued robust AI demand, while SEMI forecasts global wafer fab equipment sales rising by 9% to $126 billion in 2026.
As 2025 draws to a close, the discussion around AI spending is increasingly focused on the necessity for proof of profitability. The financing landscape generates concern, with projections indicating that AI capital expenditures could reach $600 billion by 2027. This need for substantial financial backing raises questions about how sustainable the current AI momentum will be.
As the market prepares for the next trading session, investors should remain vigilant for potential volatility amid smaller volumes, closely monitor the forthcoming Fed minutes, and assess whether reported AI spending translates into tangible financial returns. The narrative surrounding AI stocks will continue to evolve, underscoring the dynamic intersection of technology and finance.
See also
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