Good performance, small drop; bad performance, heavy plunge: US tech stocks trapped in a "vicious cycle"
- Core Thesis: US tech stocks are experiencing an asymmetric predicament where "good earnings fail to lift prices, while bad news triggers sharp sell-offs." This reflects growing market skepticism about the high valuations and returns of AI investments, with price drivers shifting from fundamentals to positioning and deleveraging.
- Key Factors:
- TSMC's Q2 net profit surged 77% year-over-year and raised its revenue guidance, yet its stock still fell 2.3%; IBM plunged over 20% in a single day due to a profit warning, indicating the market has set an extremely high bar for earnings expectations.
- The Nasdaq index declined, and the semiconductor sector has fallen 22% from its mid-June peak, entering a technical bear market; Goldman Sachs' momentum stock index has lost a fifth of its market value this month.
- SpaceX's stock price fell below its IPO price ($135), reflecting investor reconsideration of high valuations in AI companies; cloud giants like Google and Amazon saw their stocks decline, while their bonds came under pressure due to massive spending plans.
- Despite ASML, Micron, and other chip companies reporting earnings above expectations, their stocks were sold off, indicating that earnings expectations for the hardware sector have already been set at extremely high levels, with positioning, not fundamentals, driving price action.
- The systemic deleveraging process that began in June is still ongoing, with leveraged ETFs, options, and margin accounts still having room for further deleveraging, creating persistent market headwinds.
- AI-related stocks and hedge fund favorites are exhibiting "directionally wrong" price movements, pointing to internal market structural disorder, with volatility at five-year highs.
Original author: Dong Jing
Original source: Wall Street News
US tech stocks are mired in a dilemma that leaves investors caught between a rock and a hard place: Strong earnings reports fail to lift stock prices, while poor results trigger sharp sell-offs. This asymmetric market reaction is shaking Wall Street's confidence in the AI investment narrative and accelerating capital outflows from high-valuation tech stocks.
TSMC reported a record 77% year-on-year surge in quarterly net profit on Thursday, and raised its 2026 revenue growth forecast to over 40%, yet its US-listed shares still closed down 2.3%. Meanwhile, IBM plunged over 20% on Tuesday after issuing a profit warning, a drop even steeper than the 1987 "Black Monday" crash. An analyst at Vital Knowledge summed up the current predicament:
"Tech stocks can't seem to win — beating estimates fails to spark rallies, while missing estimates leads to severe punishment."
Market analysts believe that investor concerns over high AI valuations and massive spending returns, combined with extremely high earnings expectations that have led to a severe divergence between fundamentals and stock prices, along with the ongoing systemic deleveraging and the collapse of momentum trading in the market, mean that positioning, rather than fundamentals, is now the primary driver of market trends.
The Nasdaq Composite Index fell 1.5% on Thursday, led lower by memory and chip stocks. SanDisk, Western Digital, and Seagate all dropped over 9%, while Intel and Micron each fell about 6%. The US semiconductor sector has fallen approximately 22% from its mid-June peak, officially entering a technical bear market. Goldman Sachs' "momentum stock" index tumbled 6% in a single day on Thursday and has lost one-fifth of its market value so far this month.
Strong Earnings Snubbed, Market Logic Has Shifted
The most alarming aspect of this tech stock correction is the severe divergence between robust fundamentals and stock price movements.
As noted in a Wall Street News article, TSMC not only saw a record 77% year-on-year increase in Q2 net profit to NT$706.6 billion (approximately US$22 billion), with a gross margin of 67.7%, but also raised its 2026 capital expenditure forecast to between US$60 billion and US$64 billion. ASML also previously reported better-than-expected quarterly results and raised its guidance. Micron's latest quarterly earnings also significantly exceeded expectations, yet its stock price has corrected approximately 25% from its highs.
Market analysts suggest that the earnings from all three companies have further strengthened the narrative of accelerating demand expansion driven by AI, providing new positive data to support the logic of AI capital expenditure and computing power investment. However, the fact that semiconductor and memory stocks are still declining despite such positive catalysts indicates that what currently dominates price action may no longer be fundamentals, but rather positioning and factor dynamics — it also means the earnings expectation bar for the hardware sector has been raised extremely high.
Notably, SpaceX, once seen as a symbol of the AI boom, has not been spared.
SpaceX completed its IPO last month at a record valuation of US$86 billion, with an issue price of US$135. The stock briefly surged to a high of US$225.64, attracting significant inflows of retail capital. However, on Thursday, its share price fell another 3.1% to US$131.11, dropping below its IPO price.
This trend reflects a broad investor reassessment of the high valuations of AI-related companies. According to the Financial Times, some investors are increasingly worried about when the massive spending by US tech giants on data centers will generate tangible returns.
Google's shares fell 4.4% on Thursday, Amazon dropped 1.2%, and bonds issued by "hyperscale cloud providers" have recently come under pressure due to concerns over their massive borrowing and spending plans.
Chip Stock Trends Become a Bellwether for the Entire Market
Amidst multiple overlapping pressures, the direction of the semiconductor sector has become a key observation indicator for the entire stock market.
Analysts believe "the future trend of chip stocks remains the most important question for the stock market. They are showing some clear cracks, so we need to see a strong and sustainable rebound soon, otherwise, it will be a real warning signal."
The semiconductor sector as a whole has now fallen approximately 22% from its mid-June peak, officially entering a technical bear market. Against the backdrop of stocks being sold off even after ASML, Micron, and Samsung reported better-than-expected results, the high-beta momentum strategy has suffered another significant blow.
The market's implied correlation remains near historic lows, clearly decoupling from the VIX index. This indicates that the current volatility stems more from a repricing of structural factors than from systemic panic — but this does not mean the risk has been cleared.
Deleveraging Wave Continues, Momentum Trading Accelerates Collapse
Behind this sell-off is a systemic deleveraging process that began in June.
Nikolaos Panigirtzoglou, a strategist at JPMorgan, stated, "The investor deleveraging phase that started in June appears to be ongoing. We believe there is still more room for deleveraging in leveraged stock ETFs, options, and margin accounts, which will act as a persistent headwind for the stock market."
Goldman Sachs data shows that the entire AI sector is under pressure, with optical interconnects, AI semiconductors, and data center stocks all falling between 5% and 12% over the past two days.
Goldman Sachs' tracked momentum stock index has fallen approximately 20% so far this month. According to Goldman Sachs' analysis, on a volatility-adjusted basis, the current volatility of this factor has risen to a five-year high, close to ten times the three-week realized volatility of the S&P 500.
Some analysts point to "wrong-way" price movements between AI-related stocks and "AI-risk" stocks, hedge fund longs and shorts, and high-beta 12-month winners and losers, indicating significant internal structural disorder in the market.
