Chip stocks plummeted, then rebounded globally. 'AI didn't crash, just rotated leadership'? Understand one key data point tonight before taking action.
The bottom line: The recent global rebound in chip stocks (South Korean stock market up 8% in a day, China's ChiNext board up 3.93%) is built on a hidden premise—the Fed won't raise interest rates. Tonight's US May CPI (Consumer Price Index, a measure of inflation) released at 20:30 Beijing time is here to test this premise: market expectations are 4.2%, a significant increase from last month's 3.8%. If you hold NVIDIA, chip ETFs, or Chinese AI computing stocks, or are thinking of bottom-fishing—this article will clearly explain what to watch for tonight and what to do when you see it.
First, what happened
Last week, there was a major incident for chip stocks: Broadcom's AI business guidance was $16 billion, but the market wanted $17.2 billion, a 7% miss. Just that one number caused the Philadelphia Semiconductor Index to drop 10.3% in a single day, wiping out about $1.3 trillion in market value from global chip stocks.
Then, the narrative changed dramatically these past few days: South Korean chip stocks surged 8%, NVIDIA and Micron rebounded 5.6%, and over a dozen A-share PCB stocks hit their daily limit-up. Many are saying: See, AI hasn't crashed, the money just moved somewhere else to rise—this is "rotation."
Why this explanation is only half right
The rebound camp has three reasons: valuations aren't high (the average P/E of the US Magnificent Seven is 28x, compared to 66x at the peak of the 1999 bubble), big tech is still spending (Microsoft plans to invest about $190 billion in AI next year), and capital is flowing back.
All sound right. But these three points share a common hidden premise: interest rates cannot rise. The "expensive" or "cheap" nature of a stock is always relative to interest rates—when rates rise, the same company appears more expensive.
The bad news is, the bond market has already started betting on rate hikes: the 2-year US Treasury yield is 4.15%, higher than the Fed's policy rate ceiling of 3.75%. This is essentially the bond market saying: "I bet the next move is a hike." The reason is simple: oil prices rose due to the Iran conflict, May employment remained strong, and inflation is turning upwards.
Tuesday's market gave a warning
On Tuesday night, chip stocks looked relatively stable (the semiconductor ETF only fell 0.07%), but gold fell 2.4%, silver fell 5.4%, Bitcoin fell 2.2%, and even crude oil fell 3%.
If it were just "rotation," not all assets would fall together. All assets falling together suggests money is leaving the market to wait and see, not rotating. The VIX fear index even rose 5%—the market says it's fine, but it's putting on its seatbelt.
What to watch and do tonight
Don't fixate on the 4.2% headline number—it's mainly driven by oil prices, so not much of a surprise. What you really need to watch is the month-over-month core CPI (price increases excluding food and energy, which the Fed cares about most): 0.2% would signal cooling, 0.3% would signal a second acceleration.
My own approach: I didn't buy a single chip stock today, waiting for the numbers.
$NVIDIA(NVDA.US) $VanEck Semiconductor ETF(SMH.US) $Invesco QQQ Trust(QQQ.US)
The copyright of this article belongs to the original author/organization.
The views expressed herein are solely those of the author and do not reflect the stance of the platform. The content is intended for investment reference purposes only and shall not be considered as investment advice. Please contact us if you have any questions or suggestions regarding the content services provided by the platform.
