Japan's Nikkei index hits its first record in 34 years, powered by the AI boom

• Japan's Nikkei 225 hit a record for the first time in 34 years. 
• The rally has been fueled by the AI boom, with chip-related stocks helping push the index up 17% this year. 
• Excitement for AI has helped the country's stock market shake off the broader economic malaise. 

The artificial intelligence craze has washed over Japan's stock market. On Thursday, the Nikkei 225 rose to a record high, surpassing levels last seen in 1989. 

The rally has been led by a coterie of chip stocks tied to the AI boom, like Tokyo Electron, which makes semiconductor manufacturing equipment, and Advantest, which makes chip-testing equipment and is a supplier to Nvidia. 

The move has pushed the Nikkei 225 to 39,099, levels that haven't been seen since the collapse of the Japanese asset bubble in the 1990s. The latest boom has sidestepped the sluggishness of the Japanese economy, which is currently in a recession, as fourth-quarter GDP data showed the economy shrinking by 0.4%.

But the AI explosion has shrugged off the economic doldrums, helping to catapult the country's stock market higher. 

The Nikkei 225 has soared 17% so far this year.

A weak yen has also provided a tailwind for stocks, as it makes equities look cheap and can help juice profits for firms selling goods overseas.

There's also the political backdrop of the AI boom, which has favored the Nikkei. The US and Japan have remained close allies while US-China relations have soured, creating an opportunity for Japanese chipmakers to cash in on the AI craze.

At the same time, China's soaring chip demand has allowed Japanese companies to help fill the vacuum of chip supply, despite the US's warnings.