January Setup: Is the Next AI Stock Rally About to Start?
AI stocks cooled off into year-end. The Global X Artificial Intelligence and Technology ETF slipped more than 5% since early November as worries about stretched valuations and rising debt for AI buildouts crept in. Even leaders like Nvidia and Palantir gave back gains after printing fresh highs.
The question for January: was this a shakeout, or a trend change? The data says it's likely a reset before the next leg higher.
Why the pullback looks temporary
Valuation made headlines, but some leaders now look reasonable. Nvidia trades near 24x forward earnings versus roughly 32x for the Nasdaq-100. That's a discount for a business expected to grow earnings about 60% next year, with room for upside if demand stays firm.
Under the surface, estimates are still climbing into 2026 on a stronger infrastructure cycle. That's the key to this setup.
The 2026 spending backdrop keeps getting bigger
Goldman Sachs now pegs 2026 hyperscaler data center spend at $527 billion, up 34% from 2025 projections-and notably higher than the roughly $465 billion outlook floated just a quarter earlier. The shift isn't hype; it's coming from real productivity gains.
Palantir's customers using its AIP are cutting workflows from weeks to minutes, and from days to seconds. IDC estimates each new dollar spent on AI solutions adds roughly $4.9 to the global economy. That math encourages broader deployments-and more infrastructure orders behind them.
Operating proof points from Palantir and Nvidia
Palantir's customer count rose 45% year over year in Q3 2025. New contracts hit a record $2.8 billion, up 151%, while revenue grew 63% to $1.18 billion-signaling bookings outpacing deliveries and potential acceleration ahead.
Nvidia continues to run hot. Management said AI infrastructure demand is above internal expectations, with Ampere, Hopper, and Blackwell GPU generations fully utilized. The company sees AI infrastructure spend compounding about 40% through decade-end, reaching $3 trillion to $4 trillion by 2030.
Why January could be the spark
Two bellwethers report on Jan. 28: Lam Research and ASML. Both sit at the heart of AI chip capacity, and their outlooks often set the tone across the group.
Lam just posted 27.5% revenue growth last quarter and sees AI data center demand expanding its served markets by billions in the coming years. ASML's Q3 bookings surprised to the upside, and demand for advanced equipment needed for AI chips is expected to grow at a double-digit pace over the next three years. Strong prints and firm guidance from these two could flip sentiment fast.
Positioning ideas for finance pros
- Favor quality on weakness: platform leaders (Nvidia, Palantir) and picks-and-shovels plays (Lam Research, ASML). Use staged entries through earnings to manage event risk.
- Track hyperscaler capex commentary. Watch whether 2026 spend guides move closer to the high end, and whether AI mix rises inside overall capex.
- Focus on bookings, backlog, and lead times. Acceleration here often precedes revenue beats by a few quarters.
- Compare multiples to growth. If forward P/E compresses while earnings revisions trend up, that's usually a favorable setup.
Key dates and signals to watch
- Jan. 28, 2026: Lam Research and ASML earnings and guidance.
- Any hyperscaler updates on 2026 capex and AI allocation share.
- Semicap bookings/backlog trends and commentary on AI-related tools mix.
- GPU supply, delivery lead times, and customer procurement behavior at Nvidia's investor updates.
Risks worth monitoring
- Valuation air pockets if growth expectations slip.
- Debt-funded capex fatigue or timing shifts at hyperscalers.
- Supply constraints or regulatory hurdles that delay deployments.
Bottom line
The fundamentals argue for a constructive Q1: rising 2026 capex, strong productivity ROI, healthy bookings, and capacity tightness in core GPU lines. If Lam and ASML confirm strength on Jan. 28, AI stocks could catch a bid into February.
Plan your entries, respect volatility, and let the data guide conviction. This content is for information only and isn't investment advice.
Sources and further reading
Goldman Sachs Research: Generative AI
Nvidia Investor Relations
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