"Liquidation isn't over yet"...AI semiconductor stocks, warning of further shock

▲ US stocks, semiconductor stocks, bear market/AI generated image

As AI semiconductor stocks falter, the leadership in the US stock market is shifting to other sectors. However, a warning has emerged that the liquidation of semiconductor leverage, which began in Korea, is not yet over.

Paul Hickey, a strategist at asset management firm Bespoke Investment Group, stated in an interview with CNBC on July 29 (local time) that there is a high probability of further deleveraging in Korean semiconductor trades. He explained that in Korea, retail investors' leverage surged and expectations for policy support were built up, but as that belief collapsed, the sharp decline intensified.

Hickey assessed that Seagate Technology's (STX) stock reaction after its earnings announcement was positive, unlike recent semiconductor stocks. He described Seagate's upward trend as an example suggesting that the semiconductor stock correction might be nearing its end.

Ford Motor's (F) earnings and outlook were also cited as signs of the US economy's robustness. The lower end of the company's guidance exceeded its previous upper end, and its commercial vehicle business also showed strength. Hickey said, “Ford's performance is a good indicator of the overall strength of the US economy and is positive for the trend of upward momentum spreading to other sectors.”

There was also a point that the rotation where other sectors rise while market leaders rest is merely a temporary phenomenon. Hickey responded, “It's much better than all sectors collapsing together,” adding, “The fact that there's a baton pass in the market is positive.” He explained that after recent adjustments, the price-to-earnings ratios of the top four S&P 500 stocks have fallen to market average levels.

Apple (AAPL) recorded the highest P/E ratio among the top five companies, exceeding 30x, while Nvidia (NVDA), despite being at the center of AI investment, remained below the market average P/E ratio. Oracle (ORCL) recently experienced a massive 35-day decline immediately after seeing a historic 35-day rise over 70 trading days. Hickey evaluated that these rapid reversals in direction indicate that the market still lacks conviction regarding the performance of AI investments.

[Article Key Summary]

-Paul Hickey diagnosed a high probability of further deleveraging in Korean semiconductor stocks.

-The positive earnings reactions of Seagate and Ford were assessed as signals of market momentum spreading from semiconductor stocks to other sectors.

-Apple recorded a P/E ratio exceeding 30x, while Nvidia was below the market average, indicating mixed valuations even among large tech stocks.

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