Chip stocks have "cooled off," but the AI cycle might not be dead yet

Over the past few weeks, the chip sector has experienced a breathtaking rapid pullback.

The DRAM ETF has corrected approximately 25% from its June 22nd high, the Semiconductor ETF (SMH) lost 12% in two weeks, and the Philadelphia Semiconductor Index has faced consecutive declines. Micron delivered what could be called an "explosive" earnings report—revenue of $41.4 billion, with forward guidance pointing toward $50 billion—but its stock price turned downward under the logic of "buy the rumor, sell the news."

Meanwhile, Meta, the most aggressive AI infrastructure buyer of the past two years, officially announced last week that it would start renting out its spare computing power to external customers, acting as a catalyst for the chip sector's downturn.

Even the most ardent "GPU hoarders" have started selling off their idle capacity.

This signal quickly triggered a chain reaction in the market. Subsequently, Samsung's released earnings further confirmed investor concerns: the surge in profits within the memory chip industry is essentially the entire sector riding the same super-cycle wave, not any single company possessing an unassailable moat. Many investors have already started worrying whether the AI narrative has reached its end.

1. This Might be a "Rotation," Not an "End"

Amidst the wave of bearish sentiment on chips, one of Wall Street's most influential strategists offered a starkly different assessment.

Michael Wilson, Chief U.S. Equity Strategist at Morgan Stanley, stated directly in his latest weekly report: underweight semiconductors, pivot to hyperscale cloud computing providers.

The weight of this statement lies in the fact that it's not declaring "AI is over," but rather stating that "the direction of profit distribution has shifted."

Wilson's analytical logic is as follows: Over the past two years, the most profitable segment of the AI value chain has been the "pick-and-shovel sellers"—Nvidia, Micron, SK Hynix. They provide the underlying computing and storage infrastructure for the AI revolution, enjoying pricing power and super-high margins due to supply shortages. However, as cloud providers' capital expenditure growth hits an inflection point, the demand growth for these "shovels" is transitioning from a breakout phase to a stabilization phase.

And going forward, the profit center of the value chain is shifting from the "shovel sellers" to the "miners using the shovels."

Cloud providers—such as Microsoft, Google, Amazon, Alibaba—are the ultimate integrators and commercial gateways for AI capabilities. They use chips to build computing power, package that computing power into cloud services, AI assistants, and enterprise solutions, and sell them to hundreds of millions of users and businesses globally. When the price increase cycle for upstream chips begins to slow down, the cost pressure on cloud providers actually eases, while their AI service revenue continues to climb.

This is a peak in the *rate of correction*, not a peak in the overall capital expenditure cycle. In other words, cloud providers won't stop investing in AI, but the fastest phase of investment growth may have passed. Correspondingly, valuations for chip stocks need to shift from pricing in "explosive growth" to "mature growth"—and this transition process is often accompanied by significant capital migration and stock price volatility.

2. Memory Chips Fall First, Potentially the Start of Capital Rotation

Let's see how the data validates this logic.

Since Meta announced its computing power rental plan, memory chips have become the epicenter of the correction storm—because memory demand is most directly dependent on cloud providers' capital expenditure intentions. When the largest buyers start signaling "we've bought enough," the growth narrative for memory suppliers naturally develops cracks.

The Micron case is the most typical. The company reported Q3 revenue of $41.4 billion, with management's forward guidance reaching as high as $50 billion—a "royal flush" in any normal environment. However, the market's response was a stock price decline. When "beating expectations" becomes the norm, what truly drives the stock price is no longer the numbers themselves, but the question of "can it beat expectations even more next time?" This pattern of "good news is bad news" is itself a characteristic of the market pricing in a cyclical top.

But if the AI cycle was truly over, what should we be seeing? We should see a complete collapse across all AI-related assets—cloud providers, AI application companies, Chinese tech stocks—none spared.

However, what the market is showing us is capital flowing *out of* chips and *into* another AI narrative thread.

3. Alibaba Surges 11%: A Flare for the New Rotation

One of the most compelling pieces of evidence occurred during U.S. trading yesterday.

Alibaba's U.S.-listed shares surged 11% in a single day. This happened while the chip sector was experiencing a brutal sell-off. If the AI narrative had truly broken, Alibaba, being a downstream player in the AI value chain, should logically have declined in tandem. But the opposite occurred—capital retreated from chips and flowed into Chinese cloud computing and AI platform companies like Alibaba.

Two logics are resonating behind this.

The first is the rotation itself. As Wilson suggested, the profit center of the value chain is migrating from hardware infrastructure to software platforms and cloud services. Alibaba, as China's largest cloud provider and one of the key AI large model developers, stands to benefit from this shift in profit distribution.

The second logic has a geopolitical flavor. There are market rumors (unconfirmed by official channels as of press time) that the Chinese government plans to impose stricter restrictions on the export and overseas access of cutting-edge AI models. This policy signal indicates that the U.S.-China AI competition is further intensifying—each country is attempting to build its own sovereign and controllable AI technology stack. In this context, the strategic value of local platform companies with a complete AI ecosystem (cloud computing, large models, application scenarios) is being reassessed by the capital market.

It is worth noting that U.S.-based cloud providers—Microsoft, Google, Amazon—have not yet exhibited such a drastic positive reaction in their recent stock prices like Alibaba did. This could be because their valuations were already relatively high, or because the market is still digesting the suppressing effect of "peak capital expenditure growth" on short-term income statements. However, based on the rotation logic, if capital is indeed moving from chips to cloud platforms, a valuation recovery for these giants is likely just a matter of time.

4. Final Thoughts

The correction in chip stocks is painful, but the AI story is far from over.

It's just that in the next chapter, the protagonists may no longer be those selling GPUs and HBM, but those using GPUs and HBM to build the next generation of the internet. Capital is flowing from the hands of the "shovel sellers" to the hands of the "shovel wielders"—this isn't AI's funeral; it's a redistribution of profits within the AI value chain.

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[Disclaimer] This article is market observation and commentary content. It represents the author's analysis of public information and personal views only, does not constitute investment advice, and does not constitute a recommendation or offer for the purchase or sale of any security. The views of third-party institutions referenced herein (including Morgan Stanley and its analyst Michael Wilson) represent the positions of themselves or their respective organizations, not the views or judgments of BIT. Market trends and individual stock performance are affected by multiple factors. The attribution analysis in this article represents only one possible interpretation, does not guarantee accuracy, and does not guarantee that future markets will follow this logic. Investment involves the risk of potential loss of principal. Please make decisions prudently.