Could January Spark the Next Big Rally in AI Stocks? | The Motley Fool

Artificial intelligence (AI) stocks have hit a rough patch of late. The Global X Artificial Intelligence and Technology ETF , which is the largest AI-focused exchange-traded fund (ETF), is down over 5% since the beginning of November. Concerns about AI being in a bubble, high valuations, and the huge amounts of debt that certain companies are taking on to build AI infrastructure have been weighing on investors' minds of late. This explains why prominent AI names such as Nvidia ( NVDA 0.32%) and Palantir Technologies ( PLTR +0.02%) have been pulling back after hitting 52-week highs in the past couple of months. Investors will now be wondering if AI stocks can witness a turnaround in their fortunes in the new year. Let's check if there is a possibility of a big rally in this sector in January that could set up AI stocks for a solid 2026. Image source: Nvidia. The sell-off shouldn't last for long The recent weakness in AI stocks can be attributed to the high valuations of companies in this sector. However, the good news for investors is that they can buy some of the top names in this industry at an attractive valuation right now. NASDAQ: NVDA Key Data Points Nvidia, for instance, is trading at just 24 times forward earnings , which is well below the tech-laden Nasdaq-100 index's earnings multiple of 32 (using the index as a proxy for tech stocks). That's quite attractive for a company that's expected to deliver a 60% jump in earnings next year, especially considering that Nvidia has the potential to clock a bigger jump in earnings. That's because spending on AI infrastructure is likely to increase even further in 2026. Goldman Sachs estimates that hyperscalers are set to spend $527 billion on data center infrastructure next year, up by 34% from 2025's projected spending. However, it is worth noting that these estimates have moved significantly higher of late. Goldman Sachs notes that hyperscalers were initially expected to spend $465 billion in 2026, according to estimates at the beginning of the third quarter. However, that number has increased substantially. A key reason why that's the case is because of the payoff that AI is bringing for its adopters. For instance, customers using Palantir's Artificial Intelligence Platform (AIP) to connect their data and operations with generative AI tools are witnessing healthy productivity improvements. One of them points out that a problem that earlier took weeks to solve can now be tackled in just five minutes, while another added that a process that used to take nine days to complete is now executed in just seconds. These gains aren't surprising. Market research firm IDC points out that "every new dollar spent on AI solutions and services by adopters is expected to generate an additional $4.9 in the global economy." So, it is easy to see the terrific expansion in Palantir's customer base. Its overall customer count increased by 45% year over year in the third quarter of 2025. More importantly, the...

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