Bargain hunting lifts tech and semiconductors… limited rebound following sharp sell-off
Forced CTA liquidations and data center regulation concerns keep volatility alive
Key Market Trends
① Bargain hunting follows $3 trillion wipeout… semiconductor shares rebound in tandem
U.S. equities saw bargain hunting centered on technology shares following a record rout. Four sectors, including technology and communication services, advanced, while seven sectors—such as consumer staples, real estate, and financials—declined.
On Thursday alone, the market capitalization of the S&P 500 shrank by approximately $.9 trillion, with about $1 trillion vanishing from the "Magnificent Seven" alone. Nvidia recorded its steepest drop since the DeepSeek shock.
Reflecting the depth of the pullback, Nvidia, Meta, and Alphabet rebounded, while semiconductor stocks like AMD, Micron Technology, and Broadcom rose in tandem. Lam Research surged following news of a massive share buyback.
Yet the rebound was modest compared to the preceding decline. Stronger-than-expected U.S. employment data and remarks from Federal Reserve officials signaling the possibility of additional tightening rekindled rate pressures.
② Data center regulations: Will they shake up 2027 demand immediately?
Analyses have also begun to emerge suggesting that market concerns regarding data center regulations—which triggered the recent semiconductor sell-off—may have over-discounted their actual impact on demand.
Susquehanna estimated that unapproved projects account for roughly 60 GW out of about 148 GW in data center projects slated for 2025–2030. Applying a negative scenario where stricter regulations lead to the cancellation of 20% of those unapproved projects, about 12 GW could be affected.
Conversely, the majority of projects scheduled to go live in 2027 have already received permits, and considerable progress has been made in approving 2028 volumes. Even under a worst-case scenario, the reduction in semiconductor revenue is estimated at a maximum of around 10%.
Some analysts suggest that regulations could paradoxically enhance the competitiveness of incumbent operators. If constructing new data centers becomes difficult, the value of existing facilities owned by hyperscalers with secured infrastructure will rise, while curtailed capital expenditures would alleviate recently highlighted debt and cash flow burdens.
Semiconductor valuations have also compressed rapidly. The forward price-to-earnings ratio of the Philadelphia Semiconductor Index has fallen to around 15x. This explains why assessments are emerging that the recent stock pullback has largely priced in the potential for demand reduction driven by data center regulations.
③ Supply-and-demand dynamics behind the rout… Forced CTA liquidations
Gaining traction is the view that this week’s sharp decline cannot be explained solely by AI fundamentals.
JPMorgan analyzed that forced position unwinding by systematic funds exacerbated the sell-off. Because CTAs and trend-following strategies react to price and momentum rather than corporate earnings, they reduced leverage as the indices plummeted; this selling pressure drove indices lower, in turn triggering additional liquidations.
Stock sell orders in the final moments of the trading session alone were estimated at over $60 billion, with roughly 90% concentrated in semiconductors, the Nasdaq 100, and tech ETFs. The possibility of further selling over the coming days remains.
Barclays similarly raised the prospect of sustained, large-scale stock index futures selling in the short term. The Wall Street Journal reported that hedge fund position reductions were the largest in a decade.
It is essential to consider that mechanical selling overlapping with fundamental shifts may have widened stock price volatility beyond actual underlying bad news.
Market Analyst's Perspective
This week, the market priced in the new variable of data center regulations at an exceptionally rapid pace. Share prices plunged before earnings estimates for semiconductors and AI infrastructure companies could be empirically proven to have declined.
Short-term relief remains elusive. It is premature to conclude that position unwinding by systematic funds and CTAs has completely run its course, and news surrounding the pace of AI investment—such as reports on Microsoft reorganizing its external data center partners—continues to emerge. The listing schedule of Anthropic and the possibility of valuation adjustments could also influence investor sentiment.
On the other hand, looking at the timeline of data center projects, there is insufficient basis to conclude that next year's memory demand will experience a sharp contraction anytime soon. With numerous projects already approved, the supply shortages and long-term contracts recently confirmed by Samsung Electronics and SK hynix remain unchanged. This is a juncture to verify the gap between equity prices and actual corporate earnings.
With U.S. employment coming in stronger than expected, interest rate variables have resurfaced. Even if AI regulations and supply shocks subside, macroeconomic conditions are not currently in a state where interest rates are moving favorably in tandem. Therefore, rather than concluding that a bottom has been reached based on a single tech stock rebound, it is necessary to verify whether supply-and-demand dynamics and earnings outlooks stabilize together.
The MSCI Korea Index rose 4.04%, and overnight futures gained 1.6%. In the domestic stock market next week, whether foreign selling actually moderates will be far more important than the magnitude of the technical bounce in beaten-down semiconductor shares.
Checkpoints for Next Week
Semiconductor Supply & Demand: Watch for a moderation in the intensity of foreign selling in Samsung Electronics and SK hynix.
Systemic Liquidations: Monitor whether position unwinding by CTAs and hedge funds triggers additional capitulation.
Data Centers: Verify whether regulatory discussions translate into actual project cancellations and downward revisions to earnings forecasts.
Interest Rates: Track shifts in U.S. interest rates and Federal Reserve monetary tightening expectations following robust employment data.
Leading Sectors: Assess whether heavily sold semiconductor and AI stocks with resilient earnings and institutional backing are staging a recovery.
Source: Market Analyst's Stock Story (t.me/shmstory)
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This article has been reorganized from a Telegram post by "Market Analyst's Stock Story" with the author's consent. All content may contain errors and does not constitute a recommendation to buy or sell, and thus cannot be used as a basis for trading. Under no circumstances may the contents of this post be used as legal grounds.
