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NASDAQ 100'S AI GLOW MASKS A HIGHER BAR

The Nasdaq 100 is once again the market's preferred way to play artificial intelligence, but investors are paying up for that privilege.

Analysts at Citi say the index has outperformed other growth benchmarks this year because it offers concentrated exposure to mega-cap companies at the heart of the AI buildout. Strong first-quarter earnings and a steady run of upward profit revisions have reinforced confidence that the growth story is still alive.

The Nasdaq 100 .NDX hit an intraday high on Monday, building on momentum from Friday when it closed at a record peak. The index is now up about 16% year to date, underscoring investors' appetite for large-cap technology stocks tied to the AI boom.

That optimism, however, comes with caveats. The Nasdaq 100 trades at roughly 25 times forward earnings – not cheap, but still short of the excesses seen in earlier technology bubbles, Citi analysts note.

Improving margins and healthy returns on equity help justify the valuation, even as financial leverage trends lower.

The greater risk lies in expectations. While traditional multiples do not look extreme, implied growth measures suggest markets are pricing in mid- to high-teens earnings growth over the next five years, according to Citi. Low PEG ratios indicate investors remain uneasy about how durable that growth will be.

The Nasdaq 100 may still be the purest large-cap AI bet, Citi analysts argue. But with so much future success already embedded in prices, it will take continued earnings upgrades to keep the rally on track.

(Rashika Singh)

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