--- title: "Positions Crashed, The Story Remains—Understanding the Underlying Logic of This AI Stock Plunge" type: "News" locale: "en" url: "https://longbridge.com/en/news/289017458.md" description: "The primary cause of the global tech stock plunge was extreme crowding and excessive leverage in the AI chip sector, with non-farm payrolls serving as the trigger for deleveraging. Selling pressure concentrated on stocks with the largest prior gains, indicating typical deleveraging rather than a fundamental collapse. AI demand has not weakened; the key is to monitor subsequent US CPI data, the Federal Reserve's interest rate decision, and whether Korean stocks can stabilize, to determine if this is a phase of clearing or the beginning of a longer adjustment" datetime: "2026-06-08T07:34:46.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/289017458.md) - [en](https://longbridge.com/en/news/289017458.md) - [zh-HK](https://longbridge.com/zh-HK/news/289017458.md) --- # Positions Crashed, The Story Remains—Understanding the Underlying Logic of This AI Stock Plunge US non-farm payrolls added 172,000 jobs in May, more than double market expectations. This should have been a reassuring report—the economy was not stalling, and employment was still expanding. Yet the way it landed felt more like a trigger. On Friday, June 5, the Nasdaq Composite closed down 4.18%, its worst single-day performance since April 2025; the Philadelphia Semiconductor Index fell 10.26% in one day, wiping out over $1 trillion in combined market value for the chip sector, marking its worst day since the circuit-breaker episode of March 2020. Three days later, on Monday morning, South Korea's KOSPI opened with a drop of over 8%, breaking below 7,500 points and triggering a circuit breaker that halted trading for 20 minutes; A-shares opened lower and declined further, with the Shanghai Composite losing the 4,000-point mark during the session; the Nikkei and Taiwan stocks each fell nearly 4%. A jobs figure that was not even spectacular overturned tech stocks from New York to Seoul within 48 hours. The severe mismatch between the magnitude of the data and the market reaction is what makes this decline truly worth pondering. ## **The Real Issue Was Not the 172,000 Jobs, But the Positions It Hit** Attributing this plunge entirely to expectations of rate hikes does not hold water. After the non-farm payroll release, the yield on the 10-year US Treasury indeed jumped to 4.5%, while the two-year yield rose to 4.17%, hitting a new high since February 2025. Market bets on rate cuts within the year were wiped out, with futures briefly pricing in rate hikes. Rising interest rates hit high-valuation growth stocks first—this logic is sound. However, on the same day, the Dow Jones Industrial Average fell only 1.35%, Russell 2000 small-cap stocks briefly turned positive during the session, and nearly half of the S&P 500 components were still rising. If interest rates were systematically revaluing all assets, the pattern would not look like this. Selling pressure was highly concentrated, focused on those stocks that had surged the most and were bought most crowdedly over the past two months. How crowded these positions were had already triggered alarms on Wall Street before the crash. Goldman Sachs data showed that the net leverage ratio of global hedge funds surged from below 70% to over 80% in less than two months, approaching the 85th percentile of the past five years; net allocation to the information technology sector increased by 853 basis points in a single quarter, the largest quarterly increase on record; the semiconductor industry alone accounted for 19% of global hedge funds' total exposure, a historical high, and this proportion has more than doubled since the beginning of 2026. Citigroup strategist David Chew stated clearly three days before the crash: bullish bets on the Nasdaq 100 had been stretched to extreme levels, "any negative catalyst would significantly increase the probability of profit-taking and long position unwinding." Citigroup's famous "Bear Market Checklist" triggered 11.5 out of 18 items on June 5, the highest reading since the 2008 financial crisis. **When a sector is bet on by global capital in the same direction with the same leverage, it is no longer a diversified investment, but a trade. And in any trade, someone always has to press the sell button first.** Non-farm payrolls provided the reason to press that button. This crowding also self-reinforces. In recent years, trend-following quantitative funds, risk parity strategies, and a large volume of zero-day-to-expiry options have become significant forces in the US stock market. Their common characteristic is following the trend. Once prices break key levels and volatility spikes, models mechanically reduce positions, while the selling itself lowers prices and pushes up volatility, feeding the next round of selling. Humans decide whether to sell; machines decide how fast to sell. On June 5, the VIX fear index surged about 34% in one go, climbing back above 20, signaling that this positive feedback loop had been activated. As for the exact volume forced out by programmatic unwinding that day, there is no public market data; this is a mechanistic judgment, and there is no need to force it into a precise monetary figure. ## **Look at How Individual Stocks Fell to See This Is Deleveraging** Those who rose the most fell the hardest this time. May was a carnival month for chip stocks. The Philadelphia Semiconductor Index's year-to-date gain once exceeded 60%, rising in 22 out of the past 23 trading days; Micron rose by as much as 154% this year, SanDisk nearly quintupled, and AMD rose 40% in May alone, hitting a new historical high. When money floods in one direction, no one cares about valuation. On June 5, the bill came due. Marvell, which had surged about 25% in a single day previously due to Jensen Huang's comment about being a "potential trillion-dollar company," gave back over 16% on this day, leading the decline in chip stocks; Micron fell about 13%, while AMD and Intel each dropped about 11%. These were all names atop the previous gainers' list. In contrast, NVIDIA fell only about 6% on the day. Its market cap dropped below $5 trillion, evaporating nearly $280 billion in a day, which sounds scary, but it was relatively resilient amidst the chaos. The general remained standing; it was the soldiers charging at the front with the heaviest leverage who fell. This pattern of "leaders holding firm while the edges collapse" is a typical scene of deleveraging, not what a fundamental collapse should look like—if there were truly a problem with AI demand, NVIDIA would be the first to be questioned. The direct fuse was lit by Broadcom. On June 3, it issued Q3 AI chip sales guidance of $16 billion, lower than the market expectation of $17.2 billion, and more critically, did not raise its full-year AI chip target. In a market accustomed to "upward revisions every quarter," "maintaining unchanged" was interpreted as negative news. A string already stretched extremely tight snapped with just a gentle pluck. ## **Why South Korea Triggered the First Circuit Breaker** Selling pressure transmitted downward along the lines of heaviest holdings, with the first stop being South Korea. At the Monday opening in Seoul, Samsung Electronics and SK Hynix both fell about 10% during the session. Together, these two companies account for nearly half of the total market value of the KOSPI—South Korea's stock market bet on AI to this degree of concentration. The KOSPI was one of the best-performing markets globally this year, having risen the highest, so naturally, it had the most room for retracement; when global capital needed to cash out and reallocate, Korean tech stocks, with the heaviest holdings and best liquidity, became the most convenient "ATM." Traders at BNY and Lucerne Asset Management used similar phrasing: these are the most heavily held assets globally, so they naturally became the first objects sold off to obtain liquidity. Another amplifier was local leverage in South Korea. As of June 4, margin balances for South Korean retail investors remained at a historical high of 37.74 trillion won; the won fell to near 1,560 per US dollar on Monday, accelerating foreign capital flight. Some brokerages directly suspended margin trading as credit limits were exhausted. The South Korean Minister of Finance, the central bank, and financial regulators issued a joint statement on the day, promising intervention in the foreign exchange market. Further down this chain were Taiwan stocks, home to TSMC, and A-share computing power chains. Their distance from the epicenter varied, and the logic behind their trading differed as well. ## **Which Assets to Watch in This Round, and How** Asset reactions occur in sequence; do not lump them all together. The first to move and the most sensitive is HBM, the epicenter. High Bandwidth Memory is currently the hardest bottleneck in AI computing power. SK Hynix holds over half of the global market share, followed by Samsung; these two are the primary entities being traded in this round. Their performance basically defines the sentiment ceiling for the entire chain. Watching their order books is more accurate than watching any AI concept index. One layer out are the highly crowded US chip stocks in the Philadelphia Semiconductor Index—Micron, Broadcom, Marvell. They represent the core reaction, with declines determined by the progress of position clearing, not fundamentals. Further out, TSMC is the choke point for process technology and advanced packaging, belonging to the node chain closer to the core. A-share optical modules, CPO, PCBs, and servers represent chain diffusion. They have real performance links to global AI capital expenditure, with orders indeed following the deployment of NVIDIA and Broadcom, but pricing contains a higher component of expectations, resulting in greater elasticity. When the epicenter sneezes, these areas easily catch a cold. As for a batch of high-position thematic stocks and crypto assets that rose broadly with the AI concept, they are more driven by sentiment and leverage follow-through, lacking direct fundamental support; these positions require the most caution. In comparison, A-share computing power chain pricing incorporates more local capital and policy expectations, and may not synchronize one-to-one with US stocks, but as long as the global AI narrative remains the pricing anchor, it will be difficult for it to completely escape this clearing process. On the cross-asset front, the decline in gold and Bitcoin follows the same logic: as real interest rates rise, non-yielding assets come under pressure. On June 5, gold fell by over $100 in a single day, dropping below $4,370 and wiping out all year-to-date gains; silver weakened simultaneously, and Bitcoin briefly fell below $60,000. The US Dollar Index strengthened continuously; a strong dollar combined with rising real interest rates exerted consistent pressure on non-yielding assets. By Monday, Bitcoin had rebounded above $63,000, with risk sentiment repairing ahead of the stock market—a signal worth noting. If net leverage begins to decline, the VIX fear index peaks and turns downward, and order prices for HBM and computing power remain tight, this round is likely a violent but phased clearing, where the drop actually frees up space. However, if the CPI on June 10 exceeds expectations again, coupled with a shift in the Federal Reserve's dot plot towards rate hikes during its June 16-17 meeting, the nature of the situation changes—a systematic upward shift in the interest rate center means high-valuation AI assets face a complete rewriting of their valuation logic. Deleveraging would merely be the opening act; at this point, one must acknowledge reality and adjust towards greater caution. Another reverse signal to watch: if core targets like NVIDIA or SK Hynix begin to lower guidance or show loosening in capital expenditure, that would be the moment when fundamentals are truly problematic. ## **It Was Positions That Crashed, Not the AI Story** In the same week that the Philadelphia Semiconductor Index evaporated a trillion dollars in a day, TSMC Chairman C.C. Wei stated at the shareholder meeting that global chip supply "will not meet AI demand for the next few years," and that demand for advanced processes in 2026 will exceed capacity by 25% to 30%. Jensen Huang said in Seoul on June 7 that memory shortages "will last for several years"; NVIDIA and SK Hynix just announced a multi-year memory cooperation, and SK Hynix's 2026 HBM capacity is already fully sold out. The company's Chairman Chey Tae-won even extended the shortage timeline to 2030. DRAM prices rose about 90% quarter-on-quarter in the first quarter of this year. On the demand side, there are no signs of weakening. It was not the story that crashed, but the way people bet on the story. Jensen Huang responded to Friday's plunge with just one sentence, telling reporters in Seoul: "We are just getting started. Regardless of what happens in the stock market, you should be happy because you can buy at a discount now." This statement certainly reflects his position, but it points to the core of a divergence: if you believe AI is infrastructure like the internet, then the shuffling of positions is a window to get on board; if you doubt that the returns on this round of computing power investment will ultimately materialize, then Friday was the beginning of cracks. Some people do not agree with the term "stampede" at all. In their view, Friday's market action looked more like a rotation: money did not leave the market, it just changed seats, withdrawing from crowded semiconductors and flowing into banks, industrials, and value stocks, with the Russell 2000 turning positive against the trend as corroborating evidence. According to this interpretation, this was a healthy rebalancing packaged in a frightening appearance. Goldman Sachs strategist Mueller-Glisman also said that seeing some consolidation is "not necessarily a bad thing," and that speculative leverage and option positions should digest a round of adjustments. This voice reminds people not to interpret a deleveraging event as doomsday, but it equally fails to answer one question: before positions are truly cleared and volatility truly peaks, no one can guarantee there won't be a second wave. Neither of these judgments has reached the point of conclusion. What is certain right now is that the crowded trade built up by global capital over the past two months is being forcibly dismantled. This process is violent, chained, and not yet complete; the fact that Korean stocks were still hitting circuit breakers on Monday itself indicates that the clearing is far from over. For the coming week, watching three things is sufficient: the CPI on June 10, the first interest rate meeting chaired by Powell on June 16-17 and its dot plot, and whether Korean stocks can stop falling. These will tell you whether this is a healthy deleveraging or the opening of a longer adjustment. 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