Downfall on low-priced purchases
AMD 11% and Intel 7% surge
Over-selling technology from hedge funds
Some of them are resolved, and supply and demand conditions are improved
10th Coreweave performance is key
The plunge in artificial intelligence (AI) and semiconductor-related stocks in the U.S. stock market on the 6th (local time) was somewhat subdued as the Blue Tsunami wave subsided.
The stock market fell sharply due to the reduction of the proportion of large-scale hedge funds and mechanical selling, but major indexes rebounded on the back of the inflow of low-priced purchases. In particular, investors breathed a sigh of relief as the Philadelphia Semiconductor Index (SOX), which recorded its biggest daily drop since March 2020, rose more than 4 percent on the previous trading day. However, in terms of supply and demand, some analysts say it is still unclear whether the reduction of hedge fund positions, which have been pointed out as the background of the stock market’s sudden adjustment, has been completed.
On the 6th (local time), the tech-heavy Nasdaq Composite closed at 24,579.42, up 1.09% from the previous trading day. The S&P 500 index also rebounded, rising 0.31%. In particular, SOX, which consists of major semiconductor companies, rose 4.21%, making up for some of the previous day’s fall.
Individual stocks also showed a remarkable rebound in semiconductor stocks, which have recently fallen. AMD jumped 11.04% in one day, while Intel, which recently plunged, also rose 7.71%. Taiwan’s TSMC’s U.S. stock deposit certificate (ADR) rose 6.33%, while Qualcomm and Micron also posted gains of around 5% each.
“In this uptrend, AI has been tested several times, but each time it has survived, it has dispelled concerns,” said Adam Turnquist, chief strategist at LPL Financial. Analysts say investors may have overreacted due to uncertainties over AI-related policies that arose after the Democratic Party won the U.S. midterm elections.
However, despite the rebound, the market outlook is still mixed. The recent sell-off, which weighed on U.S. tech and semiconductor stocks, adds weight to an early rebound for those who claim it came from the process of reducing hedge funds’ leverage rather than fundamental doubts about corporate earnings or growth potential in the AI industry. On the other hand, there is also a cautious theory that there may be a pattern of repeated declines and rebounds until policy uncertainty is resolved.
Earlier, global hedge funds’ move to reduce risky assets was spotted even before the midterm elections.
According to investment bank Goldman Sachs, the ratio of “net leverage,” which shows how large hedge funds’ buying positions are than selling positions, was 73.4% in October, down 4.2 percentage points from the previous month. It was the biggest monthly drop since March. It is analyzed that a net sale of $20 billion has occurred in technology stocks over the past two weeks. Morgan Stanley also pointed out that the size of the position reduction of equity hedge funds in October was the highest in more than a decade.
While hedge funds are wary of AI bubble theory, it is analyzed that they have increased their fall due to the overlapping mechanical selling. JPMorgan analyzed on the 5th (local time) that the sales volume of CTA, a trend-following fund, also increased as major indexes fell. The leveraged exchange-traded fund (ETF) was also estimated to have sold more than $60 billion in stocks at the close of the market. About 90% of them were concentrated on technology-related products such as semiconductors and Nasdaq 100.
As a result, some global financial institutions interpret the adjustment as a process of resolving overcrowded positions, not undermining the growth potential of the AI industry. Deutsche Bank upgraded its investment opinion, saying the fall in large technology stocks was excessive. Wells Fargo analyzed that investors have begun to strictly consider AI investment returns and monetization capabilities by company.
The key is whether the rebound can lead to a trending recovery. JPMorgan believes that a large-scale leverage reduction (deleveraging) may have passed its peak. In other words, supply and demand conditions will gradually improve.
The performance announcement of Coreweave, an AI infrastructure company scheduled for the 10th, is also expected to be an important variable. Some cautiously observe that the rebound in semiconductor stocks could continue if demand for AI infrastructure investment and the outlook for memory prices remain solid.
