Tech Rally: Growth Drivers and Risk Landscape

US stock futures showed mixed movements in November 2025 as a tech sector rebound driven by AI chip demand and earnings boosted the S&P 500 and Nasdaq Composite, though broader indexes remained on track for monthly declines according to market analysis. Optimism over a potential Federal Reserve rate cut in December, fueled by Fed officials' comments, supported market sentiment, with traders pricing in an 80% probability of a 25-basis-point reduction. The tech rally, the largest since May 2025, reflected renewed investor confidence in growth stocks despite concerns over high valuations.

Major indexes gained significantly the prior day, including a 2.7% Nasdaq jump-their best performance since May-amid strength in application-specific integrated circuits (ASICs) from companies like Alphabet and Broadcom according to market reports. The S&P 500 rose 1.5% and the Dow Jones climbed 0.5% on the same day, with the Nasdaq Composite's surge fueled by AI sector optimism and rising chip demand. However, all three indexes remain down for November as investors weigh tech valuations against this momentum.

Near-term volatility catalysts include delayed economic data releases and persistent uncertainty around Trump-era tariff policies, which could disrupt supply chains and inflation trajectories. Despite the rebound, valuation pressures linger-tech stocks trade at elevated multiples compared to historical averages, making them vulnerable to profit-taking if growth expectations soften. The 80% probability of a December rate cut provides temporary support, but any deviation from Fed dovish signals could quickly reverse sentiment. Investors will closely monitor earnings beats versus macro data to assess whether the AI-driven rally sustains beyond this short-term bounce.

Accelerating AI Infrastructure Demand

TSMC's October sales reached a record NT$367.47 billion (about $11.85 billion), demonstrating strong AI-driven momentum despite a deceleration in growth rate. While sales rose 16.9% year-over-year, this slowdown from earlier 2025 peaks reflects temporary market adjustments like H1 order pull-ins and seasonal shifts, not a loss of underlying demand. High-performance computing (HPC), encompassing AI workloads, continues to dominate TSMC's business, now representing 57% of its total revenue. The foundry raised its full-year 2025 sales forecast to approximately 35% growth, signaling confidence in sustained AI chip demand despite current headwinds.

Nvidia illustrates the strong adoption side of the AI boom. Its Q3 2025 results featured 60% annual revenue growth, surpassing expectations and reinforcing its dominant position in AI accelerators. CEO Jensen Huang dismissed bubble concerns, pointing to a projected $3-4 trillion in global AI infrastructure investment over the next decade as justification. However, investors reacted cautiously. Nvidia's stock dipped after earnings, reflecting skepticism about the sustainability of this rapid expansion. Concerns include the company's pursuit of unprofitable partnerships and the possibility of overvaluation, even as tech giants commit $400 billion to AI capex in 2025.

A significant bottleneck persists between surging AI chip demand and wafer supply capacity. Despite the massive $423 billion in projected AI capital expenditure for 2025 (up from $225 billion in 2024), the semiconductor industry remains cautious about expanding foundry capacity too rapidly. This restraint stems from lessons learned during past boom-bust cycles. The resulting gap between customer orders for AI chips and available foundry output, particularly from leaders like TSMC, creates a critical constraint. This supply limitation forces major tech clients, such as Tesla, to consider developing their own chips to bypass the bottleneck, highlighting the pressure points in the current AI infrastructure supply chain.

Capacity Crunch and Skepticism

Foundry capacity remains a hard constraint despite surging AI demand, with 2025 AI capital expenditure projected at $423 billion globally. Chipmakers including Nvidia face real bottlenecks in wafer supply from foundries like TSMC, creating a widening gap between chip orders and actual production. This industry caution reflects hard-won lessons from past boom-bust cycles, even as tech giants like Tesla explore building their own chips to bypass the bottleneck.

Nvidia's impressive Q3 2025 results-a 60% year-over-year revenue surge-couldn't calm market concerns about sustainability. The stock dipped after earnings despite the CEO's confident outlook on $3-4 trillion AI infrastructure spending through decade's end. Investors appear skeptical about whether Nvidia's current valuation can withstand potential spending slowdowns, particularly given the company's unprofitable partnerships like its work with OpenAI and mounting debt concerns from tech giants.

Cloud infrastructure spending patterns reveal similar scaling challenges. While AWS, GCP and Azure all showed healthy growth in GPU instance spend year-over-year, the efficiency gains for larger organizations may mask operational complexity. Observability costs declined as percentage of total spend for companies with $1 million+ monthly budgets (11.95% versus 17.91% for smaller firms), suggesting scaling advantages. However, AWS data transfer costs dominated nearly 90% of spending categories combined (45% DataTransfer-Out-Bytes plus 43% Regional-Bytes), indicating hidden infrastructure friction that could escalate as usage grows.

Catalysts and Headwinds in a Rate-Sensitive Market

The 80% probability of a December rate cut has become the central narrative for equity markets, lifting futures and tech stocks even as investors grapple with stretched valuations. The Nasdaq's 2.7% surge-the largest single-day gain since May according to market analysis-reflects this dynamic, with AI chip demand driving rebounds in names like Broadcom and Alphabet, whose earnings on the new Gemini 3 model sparked renewed buying confidence according to financial reports. Yet the rally remains fragile: the S&P 500 and Nasdaq both finished November slightly down according to market data, underscoring persistent skepticism about whether AI's growth story can justify current price-to-earnings multiples.

JPMorgan's "bargain hunting" tech recommendations added a tactical edge to the optimism, targeting undervalued names amid volatility. But investors must remain vigilant on two frictions. First, delayed tariff decisions under the new administration could abruptly reshape supply chains for AI hardware, pressuring margins for companies reliant on Asian manufacturing. Second, the orders-to-shipments ratio for semiconductor firms-which has stretched to historic highs-remains a key stress test for sector resilience. If demand cools faster than inventory builds, balance sheets could face unexpected strain.

For now, the path forward hinges on whether rate cuts can offset valuation pressures. The Fed's willingness to cut may hinge on inflation data slowing, while policymakers will watch closely as GPU spending shares rise to 30% of capital budgets for tech firms. Until then, the market's technical strength-evidenced by the Nasdaq's 1.4% November gain-remains tethered to both macro catalysts and the sector's ability to prove its growth is sustainable.