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Shares of the largest tech stocks rose to an all-time high on Tuesday after the US-negotiated truce between Israel and Iran appeared to hold for now. The Nasdaq 100 climbed 1.5% to notch its first record since February, while the S&P 500 stood within 1% of its record high.

Despite this, uncertainty abounds. Only two weeks remain before the deadline to reach trade deals with major US trading partners, and potential tariffs on semiconductors are looming. Tensions in the Middle East could still escalate again.

But the secular trend of artificial intelligence (AI) remains robust, and recent adoption and monetization trends should underpin the next leg of the AI rally amid a supportive backdrop.

Latest survey points to rising AI adoption. The US Census Bureau’s latest report that tracks AI adoption across 1.2 million firms in the US showed another step-up in companies’ use of the technology. AI adoption rates rose to 9.2% in the second quarter of this year, from 7.4% in the previous three-month period and 5.7% in the December 2024 quarter. This means AI adoption is likely to soon cross the 10% threshold that took US e-commerce 24 years to reach.

Rising use cases across industries suggest overall AI adoption is far from a peak. The Census Bureau survey showed that the improvement in AI adoption rates is broad-based, and some industries are reporting adoption rates of 25-30% with tangible use cases. Based on company reports, Amazon Q is saving around USD 260mn every year through coding assistants, while Microsoft relies on AI to complete 20-30% of its coding work. In addition, about 80% of PayPal’s customer support interactions are handled by AI, and two-thirds of subtitle creation at leading online video platforms for global streaming are created by AI. The technology has also been used to assist colonoscopies, which have shown to be twice as effective at catching abnormal tissues that might otherwise be overlooked. Without taking any single-name views, we believe a peak in overall AI adoption is still a long way off, and accelerating AI use is set to drive further monetization across industries.

US d ollar weakness serves as a tailwind amid solid fundamentals. The US dollar has depreciated sharply this year, and we think the dollar weakness will persist as US growth slows and interest rates fall. Such a backdrop will serve as a tailwind for tech stocks, as overseas sales account for over 50% of US tech companies’ revenue. This means profits earned abroad would translate into a direct boost in bottom lines, supporting a strong earnings outlook driven by rising AI spending. We estimate global AI capex will grow a further 33% next year to USD 480bn after a 60% jump this year, and we expect an earnings growth of 12% for global tech this year.

So, we continue to recommend a more balanced exposure across the AI value chain, including leading internet and software companies as well as names along the AI semiconductor supply chain globally. We think investors can also gain access to breakthrough innovation and long-term opportunities in AI through private markets. Investors should, of course, consider the risks associated with private markets before investing.