April Was the Best Month for the Market Since 2020. Here's What's Driving It.

The S&P 500 index climbed about 10.5% in April, making it the best month for the market since 2020.The index hit a new all-time high on the last trading day of the month, despite ongoing uncertainty and economic drag from the conflicts in the Middle East. So, what sent the market soaring in April?

Two words: Artificial intelligence (AI).

More specifically, it's the massive AI build-out underway in the U.S., including some $670 billion in AI capital expenditures by hyperscalers this year. (Some analysts predict it could be much higher -- UBS expects the final AI spending figure for 2026 to be closer to $770 billion.)

Goldman Sachs estimates that AI-related investment will drive a full 40% of the entire S&P 500's earnings-per-share (EPS) growth this year. Earnings growth -- or, more accurately, the anticipation of it -- is what drives stocks higher.

Image source: Getty Images.

AI spending is showing up in the financial results of many industries

The AI investment bonanza is boosting revenues and profits in companies far from Silicon Valley.

Of course, the hyperscalers -- cloud computing companies like Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), and Meta Platforms (NASDAQ: META) that offer data storage and computing services -- are the major initiators of the AI spending. Those companies are issuing billions of dollars in bonds in capital markets to fund that spending extravaganza.

Then there are the semiconductor and semiconductor equipment manufacturers. Due to the AI construction boom, there's currently a shortage of memory chips, which is expected to continue through 2027. As a result, the State Street SPDR S&P Semiconductor ETF (NYSEMKT: XSD) is up nearly 60% over the past month. Nvidia (NASDAQ: NVDA), which has the largest market cap and therefore the greatest effect on the S&P 500 index, rose 20% in April. Micron Technology (NASDAQ: MU), which makes memory chips, soared 61% in April.

Don't forget construction equipment companies like Deere (NYSE: DE) and Caterpillar (NYSE: CAT), and heavy-duty truck manufacturers like Paccar (NASDAQ: PCAR), which are needed to build the massive data centers. They, too, are seeing a windfall from the AI boom. Caterpillar's gas turbine division is booming due to the insatiable power needs of AI data centers. Sales in the company's turbine division rose 23% during the first quarter, to $1.75 billion.

GE Vernova (NYSE: GEV), which makes power technologies, blew past Wall Street expectations for first-quarter revenue and earnings, and its shares climbed 33% last month.

The rapidly rising demand for power is affecting electricity utilities, too. Dominion Energy (NYSE: D) just turned on the first commercial turbine project in its Coastal Virginia Offshore Wind project. Dominion plans to spend nearly $55 billion to build facilities to support the power needs of data centers (Virginia has more than any other state).

The enormous AI tailwind for the market should continue for the foreseeable future. Goldman Sachs expects AI infrastructure spending to reach nearly $800 billion in 2027.

An AI-driven stock market is a trend with staying power and is increasingly looking like a potential supercycle.

Matthew Benjamin has positions in Alphabet and Deere & Company. The Motley Fool has positions in and recommends Alphabet, Amazon, Caterpillar, Deere & Company, GE Vernova, Goldman Sachs Group, Meta Platforms, Micron Technology, Nvidia, and Paccar. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.