Persistent AI and Data Center Concerns... Tech Stocks See Limited Rebound After Sharp Decline
Valuations Fall Rapidly... Foreign Investor Flow Reversal Takes Priority
Key Market Trends
① Bargain Hunting in Tech Stocks... But Rebounds Remain Limited
U.S. stock markets over the weekend saw bargain hunting centered around heavily beaten-down tech stocks, leading to a rebound in the Nasdaq. While four sectors including tech advanced, seven sectors declined, making it difficult to view overall market sentiment as fully recovered.
There were no clear positive catalysts either. On Thursday alone, the market capitalization of the S&P 500 shrank by about $2.9 trillion, and the Magnificent Seven saw a drop of about $1 trillion. Given the steep declines over such a short period, the buying was largely driven by opportunistic bargain hunting.
Analyses continued that concerns over data center regulations had been overly exaggerated. Many projects have already secured permits, leading to the perspective that the pace of new projects may be adjusted rather than widespread cancellations of construction altogether.
Political figures also made remarks far removed from any move to halt the AI industry itself. President Trump expressed support for AI and indicated a willingness to cooperate with regions seeking to attract data centers. In Texas, conditions surrounding local community burdens such as electricity rates remained at the center of policy discussions.
② Microsoft and Employment Weigh Again... Interest Rates Also a Variable
Factors limiting the rebound also persisted. Reports emerged that Microsoft was considering scaling back partnerships with external data center vendors, reigniting concerns over the pace of AI investment.
Microsoft has been responding to data center demand by utilizing external vendors such as CoreWeave and Oracle. Some reports suggested Oracle could be a target for contract restructuring. Oracle shares dipped to $110 during the session before paring losses to around the $116 level. The company stated this is part of its routine management of investment plans.
U.S. employment also came in stronger than expected. Nonfarm payrolls in October increased by 165,000, significantly beating the market forecast of 65,000. Figures for August and September were also revised upward, and the unemployment rate dipped to 4.1%, lower than the projected 4.2%.
While strong employment is positive from an economic standpoint, it acted as a factor limiting the tech stock rebound by dampening interest rate cut expectations and pushing up Treasury yields.
③ Stock Prices Fall Deeper Than Bad News... Widening Gap with Earnings Forecasts
The recent market has seen persistent AI headwinds alongside signals of oversold conditions.
An unusual phenomenon emerged where the forward price-to-earnings ratio of U.S. tech stocks dropped below that of the broader market, while Samsung Electronics also plunged over 40% in a short period. Given that historical price adjustments of this scale typically occurred only when next-year net profits dropped sharply, current prices can be interpreted as heavily pre-pricing significant earnings deteriorations.
News also broke that DDR5 spot prices fell by more than 1%. This was interpreted as concerns over data center demand spilling over into the spot market. However, spot prices are formed in distribution channels rather than through long-term corporate contracts and have traded at levels higher than fixed transaction prices, necessitating a distinction from actual memory industry conditions.
The core issue is that the market currently distrusts earnings forecasts themselves. Every time data center investment plans shift, attempts to recalculate future semiconductor demand outlooks are exacerbating stock volatility.
Market Analyst's Perspective
The recent sharp decline was driven not only by fundamentals but also heavily by supply and demand dynamics. JPMorgan estimated that over $60 billion in stock selling occurred near the close of Thursday's session, with about 90% of it concentrated in semiconductor, Nasdaq 100, and tech ETFs. Hedge funds also reduced their positions at an unusually fast pace.
In the domestic stock market, a shift in supply and demand must ultimately come first. Recent foreign selling has concentrated on semiconductors such as Samsung Electronics and SK hynix, and the persistent intensity of selling throughout the trading session has made it difficult for bargain hunters to step in.
A significant gap has formed between fundamentals and stock prices. Even though supply shortages and long-term contract conditions confirmed by Samsung Electronics and SK hynix have not changed drastically, stock prices are first reflecting a sharp plunge in future earnings. At the same time, it cannot be assumed that stocks will immediately rebound simply because they are cheap.
Ultimately, confirming supply and demand takes precedence over prices right now. It is crucial whether the proportion of foreign selling diminishes and consecutive bargain hunting flows into semiconductors. While it is a period where large trends cannot be easily assumed to change overnight, it is a section to carefully examine stocks that have fallen deeper than actual earnings changes.
Today's Checkpoints
Foreign Investors: Whether the intensity of concentrated selling in Samsung Electronics and SK hynix is easing
Semiconductors: Verifying if bargain hunting persists for more than a day following the plunge
Memory: Whether the weakness in DDR5 spot prices spreads to fixed transaction prices
Interest Rates: Treasury yield movements following stronger-than-expected U.S. employment data
Supply and Demand: Whether additional forced liquidation emerges following system and hedge fund selling
Source: Market Analyst's Stock Story t.me/shmstory
YouTube: Market Analyst TV www.youtube.com/@blueoak1004
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. The contents of this post cannot be used as legal grounds under any circumstances.
