Why AI Stocks Ignored the Government Shutdown and Hit Record Highs

In a move that defied conventional expectations, U.S. equities surged to record highs even as the federal government shut down for the first time in nearly seven years. The S&P 500 rose 0.34%, while the tech-heavy Nasdaq gained 0.42% on Wednesday and extended its rally into Thursday. Rather than panic over political dysfunction, investors piled into AI stocks, propelling the market to new heights.

This unusual resilience underscores a clear message from traders: artificial intelligence momentum, not Washington gridlock, is driving equity markets in 2025. To understand why, we need to examine the structural forces reshaping capital allocation this year.

Richmond Lee, CFA and Senior Market Analyst at PU Prime commented:

U.S. equities remain underpinned by strong AI enthusiasm, with the Nasdaq extending to fresh record highs as investors continue to favor growth-driven technology names. The latest catalyst came from AMD, whose shares surged more than 30% after reports that OpenAI—the company behind ChatGPT—plans to acquire up to a 10% stake in the chipmaker. The move underscores how AI partnerships are reshaping the semiconductor landscape and sustaining market optimism toward innovation-linked stocks.

However, this rally unfolds against a fragile fiscal backdrop. Renewed concerns about a potential U.S. government shutdown are tempering sentiment, with investors wary of disruptions to key data releases and possible delays in policy signals. Any fiscal impasse could trigger short-term volatility and profit-taking in overextended tech names.

While near-term momentum in AI-related equities remains constructive, traders should stay alert to broader macro risks that could test sentiment.

The AI Trade: Immune from Political Risk

The shutdown’s limited impact on markets reflects the revenue sources of today’s dominant companies. The AI boom is being led by chipmakers, cloud providers, and software platforms with little dependence on federal funding. Companies like OpenAI, Nvidia, and AMD continued their ascent, bolstered by AI infrastructure spending and strong private-sector demand.

OpenAI’s recent $500 billion valuation—following a secondary share sale—symbolized the shift in investor priorities. This event triggered rallies across AI-related equities. Nvidia hit a record high, while AMD gained more than 2% on the day.

An analyst summed it up well: “We advise investors to look past shutdown fears and focus on other market drivers—like Fed rate cuts, corporate earnings, and AI monetization.” These drivers have clearly overpowered any noise coming from Capitol Hill.

OpenAI’s reported $4.3 billion in revenue during just the first half of 2025 (already surpassing 2024’s full-year total) highlights how enterprise AI adoption is fueling growth, independent of government spending. The AI rally is fundamentally a private-sector story.

Historical Precedent: Shutdowns Rarely Derail Stocks

Market participants also had historical data on their side. According to the Carson Group, the S&P 500 gained an average of 0.3% during past government shutdowns—22 in total since 1976. More importantly, stocks rose by an average of 13% in the 12 months following these events.

RBC Wealth Management noted that shutdowns tend not to derail broader economic trends or earnings momentum. CNBC’s Jim Cramer echoed this, stating that there’s no consistent correlation between shutdowns and market direction. His concern focused instead on delayed economic data—critical for Federal Reserve decision-making.

Rate Cuts: The Real Driver of Market Sentiment

The market’s confidence has been bolstered by the expectation of looser monetary policy. CME FedWatch data showed a 25-basis-point rate cut was priced in for the Fed’s October 29 meeting. Ironically, the shutdown strengthened this case.

An ADP report revealed the loss of 32,000 private-sector jobs in September—the largest drop since the COVID-19 era. With official labor market data delayed due to the shutdown, the Fed faces a cloudy economic picture. Historically, such uncertainty increases the likelihood of accommodation rather than restriction.

Lower rates disproportionately benefit tech and growth stocks, which rely heavily on capital investment. Falling rates lower borrowing costs and boost the present value of future earnings, further justifying high valuations for AI infrastructure firms.

Winners and Losers: Not All Sectors Are Insulated

While major indexes pushed higher, some sectors tied to government contracts lagged. Defense, healthcare (particularly Medicare-related firms), and IT services firms exposed to federal operations faced risks from budget freezes and project delays.

However, these sectors now account for a smaller share of market cap. Tech—specifically the “Magnificent Seven” stocks—has ballooned to 34% of the S&P 500, up from around 20% in 2022. This tech-heavy skew has made the broader index more reflective of private-sector AI growth than government-dependent industries.

The $500 Billion OpenAI Catalyst

The announcement that OpenAI had achieved a $500 billion valuation via a secondary share sale added fuel to the rally. Roughly $6.6 billion in shares were sold to investors including SoftBank, Thrive Capital, and Abu Dhabi’s MGX.

This milestone signals institutional validation of AI’s long-term value. It also dwarfs concerns about a temporary shutdown. The fact that a pre-profit AI firm can command such a valuation speaks to the level of confidence—and capital—flowing into the sector.

To investors, this is more significant than a budget dispute. It confirms AI’s role as the defining investment theme of the decade.

Safe-Haven Assets Reveal Hidden Tensions

Despite equity gains, gold and currency markets showed signs of unease. Gold rose to $3,897.13, notching its 39th record high in 2025 and outperforming the S&P 500 over the past year with a 45% increase.

This reflects deeper concerns about geopolitical risks, fiscal instability, and institutional credibility. Michael Field of Morningstar attributed gold’s surge not just to the shutdown, but to global unrest, tariffs, and political instability.

The dollar weakened by 0.2%, a sign of eroding confidence in U.S. governance. Aberdeen’s Luke Bartholomew cited ongoing dysfunction and the fiscal position as growing concerns.

Still, none of this has derailed AI-linked equities. The divergence shows traders are making calculated sector bets—not panicking broadly.

Data Delays: The Real Risk of a Prolonged Shutdown

The shutdown’s most immediate risk is the delay in economic data releases. Key reports like jobless claims and the monthly employment situation are unavailable, complicating the Fed’s policy decisions.

If the shutdown continues beyond mid-October, inflation data may also be postponed. This could force the Fed to rely on less comprehensive sources, such as ADP or regional Fed surveys.

Nevertheless, earnings season is off to a strong start. Positive corporate results could keep the rally alive until more clarity emerges on the macro front.

Market Structure and Technical Momentum Reinforce Gains

Technical factors also played a role. The S&P 500 entered October on a five-month winning streak, with strong momentum behind it. Algorithmic and momentum-based strategies amplify such trends rather than reverse them.

Options market positioning indicated that dealers might need to buy into rising markets to hedge exposure, creating a self-reinforcing cycle. This “gamma squeeze” effect helps explain continued strength even in the face of political noise.

The Long-Term Risk: Shutdown Extension

Markets are currently brushing off the shutdown—but that could change. Oxford Economics estimates a partial shutdown shaves 0.1–0.2 percentage points off GDP each week. If the standoff continues, economic costs will accumulate.

Worse, political leaders are signaling deeper cuts. Former President Trump floated plans to use the shutdown to eliminate thousands of government jobs. If such layoffs hit the October employment report, it could force the Fed to cut more aggressively—not as a policy shift, but as a response to weakening conditions.

Some strategists, including Keith Buchanan of Globalt Investments, believe markets are underestimating this risk.

Trading Implications: Sector Selectivity and Hedging

For traders, the setup offers both opportunity and danger. AI remains the dominant theme. Long positions in Nvidia, AMD, Broadcom, and hyperscalers remain well supported by capital expenditure trends.

On the flip side, government-facing sectors may represent tactical shorts or underweights. A prolonged shutdown could impair earnings and cash flow in those areas.

Gold’s rally offers a possible hedge. A barbell approach—long AI, long gold—allows traders to capture upside while insulating against political or macro shocks.

Conclusion: Silicon Valley > Capitol Hill

Markets have chosen to focus on what’s driving returns—AI infrastructure, Fed policy, and corporate earnings—rather than political dysfunction. The AI narrative has become detached from federal politics, powered by hundreds of billions in private-sector investment.

As Sameer Samana of Wells Fargo put it, “Most economic activity is delayed and usually gets made up shortly after a shutdown ends. So I can’t imagine this will be anything terribly disruptive for the equity markets.”

Unless the shutdown extends well into the fourth quarter, the rally looks intact. For now, the signal is clear: in 2025, Silicon Valley matters more than Capitol Hill.