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Tengsi | AI and Semiconductor Sectors Stage a Major Rebound! Is This a Oversold Recovery or a Trend Reversal?

The Eye of the Storm: The Semiconductor Sector's 'Perfect Storm' in July

To assess the nature of this rebound, we must first revisit the intensity and causes of this sell-off.

In July 2026, $PHLX Semiconductor Index (.SOX.US)$ recorded a monthly decline of approximately 21%, marking its worst monthly performance since October 2008—the height of the global financial crisis. The index tumbled from its all-time closing high of 14,634 points on June 22 to 10,447.49 points on July 29, officially entering a technical bear market—defined as a drop of more than 20% from its peak.

The damage at the individual stock level was even more severe: based on intraday lows reached on July 28, $Micron Technology (MU.US)$ fell 29%, $Arm Holdings (ARM.US)$ plunged 32%, $Intel (INTC.US)$ slumped 35%, while $SanDisk (SNDK.US)$ Its market capitalization evaporated by nearly half within July alone.

Disclaimer: Unless otherwise specified, all data in this article is sourced from Futu and China Fund News, collected, compiled, and verified by Gaoteng International Asset Management Co., Ltd., and has not been reviewed by the China Securities Regulatory Commission (CSRC). This article is provided for reference purposes only as market commentary.

The immediate trigger of this sharp sell-off points to a hedge fund named“Situational Awareness”a hedge fund.

The fund was founded in September 2024 by Leopold Aschenbrenner, a former OpenAI researcher, and at its peak managed assets totaling $45 billion, with a core strategy focused on"Go long AI hardware, short traditional software", and employed nearly 4x off-exchange leverage through total return swap (TRS) instruments.

When the AI hardware sector collectively corrected in July, the fund’s long positions generally dropped 25% to 45% in a single month, while the concurrently shorted $Adobe (ADBE.US)$ software stocks rebounded by 27%, creating a devastating"long-short double squeeze"situation.

On July 29, $Goldman Sachs (GS.US)$ 、 $JPMorgan (JPM.US)$ 、 $Bank of America (BAC.US)$ prompting prime brokers to issue margin calls en masse. Citadel ultimately took over approximately $16 billion of the fund’s leveraged public positions at a discount, and this forced liquidation event became the final straw that broke the market.

However, attributing the crash solely to the blow-up of a single hedge fund is insufficient.

Deeper market concerns revolve around three core questions:

First, can the capital spending frenzy on AI infrastructure be sustained?

Second, will the rise of open-source AI models reduce reliance on high-end chips?

Third, after the SOX index surged 105% from its March low to its June high, have valuations already become overly stretched relative to fundamentals?

Venu Krishna, Head of U.S. Equity Strategy at Barclays, hit the nail on the head with his commentary:"Concerns around funding uncertainty, increased capital expenditures, and the free cash flow situation of large tech companies have become focal points for the market."

Violent Rebound: The 'Epic Comeback' on August 4

Just as market sentiment had plunged to freezing levels, an 'epic' rally unfolded during U.S. stock trading hours on August 4.'epic'rally.

$Dow Jones Industrial Average (.DJI.US)$ soared over 800 points, and both $S&P 500 Index (.SPX.US)$ reached record closing highs; $Nasdaq Composite Index (.IXIC.US)$ jumped 2.59%; the more tech-heavy Nasdaq 100 Index rose over 2.5%.

As a bellwether for AI hardware stocks, the Philadelphia Semiconductor Index surged approximately 6.6% in a single day, marking its largest one-day gain since April 2025.

At the individual stock level, Arm Holdings soared 17.36%, while Intel and Western Digital both rose more than 10%, $SK hynix (SKHY.US)$ gaining over 8%, $Micron Technology (MU.US)$ up 7.62%, $Broadcom (AVGO.US)$ up 6.61%, $Advanced Micro Devices (AMD.US)$ up 7.00%.

Notably, $Palantir Technologies Inc (PLTR.CA)$ its stock price surged 29% in a single day after reporting nearly doubled quarterly revenue and raising its full-year guidance, providing direct and strong validation of the commercialization prospects for AI applications.

In terms of fund flows, $ChinaAMC SSE STAR Semiconductor Material & Equipment Thematic ETF (588170.SH)$ net inflows over the past 20 days reached RMB 27.181 billion. $Guotai CSI Semiconductor Material Equipment Theme ETF (159516.SZ)$ Net inflows during the same period amounted to RMB 7.876 billion, indicating that medium- to long-term capital did not exit amid the sharp July sell-off; instead, it has been actively accumulating positions.

Multi-dimensional attribution

First catalyst: The rapid unwinding of geopolitical risk premium.

On August 4, Qatari officials stated that a draft agreement between the U.S. and Iran regarding the Strait of Hormuz had been finalized, and U.S. Treasury SecretaryScott Bessentalso publicly expressed optimism about reaching an agreement in the near term.

Following the announcement, international oil prices plunged by more than 5% in a single day, temporarily easing market concerns over inflation and boosting risk appetite across the board.

Thierry Wizman, Global FX and Rates Strategist at Macquarie Group,Thierry Wizmancommented on this development:Looking at the stock market’s relentless rally over the past three trading days, you’d hardly think anything was wrong with the world.

Second catalyst: Financial results validating the AI 'input-output' positive feedback loop.

Prior to the July sell-off, the market’s biggest concern was whether the cloud computing giants’ capital expenditures—running into hundreds of billions of dollars—were recklessly draining corporate cash flows.

However, the just-released Q2 earnings reports from major U.S. tech companies delivered a starkly different message:

Microsoft $MICROSOFT-T (04338.HK)$ Quarterly revenue hit $90 billion, up 17.8% year-over-year; Azure cloud business grew 43% in the quarter—the highest since 2022—and the company expects Azure growth to accelerate further to 45% next quarter;

$Amazon (AMZN.US)$ AWS revenue rose 37% year-over-year, marking the fifth consecutive quarter of accelerating growth, and the company raised its full-year 2026 cash capital expenditure forecast from $200 billion to $220 billion—the CEOJassyexplicitly stated during the earnings call"Even with the increased spending, we won’t be able to meet all our compute demand in 2026, and demand will remain strong in 2027 and 2028."；

$Meta Platforms (META.US)$ raised the lower end of its full-year capital expenditure guidance from $125 billion to $130 billion, and officially announced a partnership with $Blackrock (BLK.US)$ to build a $14 billion data center.

As summarized by Open Source Securities: capital expenditure guidance from the four major cloud vendors has been collectively revised upward or maintained at a high growth level, yet the market has not panicked—primarily because cloud revenue growth and backlogs have both surged significantly—AI"Input–Output"the virtuous cycle was firmly validated in this quarter's earnings reports.

The third catalyst: forced selling pressure clearing from the market.

With the Situational Awareness fund undergoing forced liquidation and Goldman Sachs trading desk data showing a wave of short-covering by hedge funds—the U.S. equity market recorded its largest single-week net buying since November 2020 last week, driven almost entirely by short-covering, with semiconductors and equipment being one of the subsectors seeing the highest net hedge fund buying.

—the departure of the market’s last"forced seller"often signals that selling pressure has been exhausted for now; Wall Street views this as"a bottoming out of the AI trade"signal.

Fundamental Lens: Oversold Bounce or Trend Reversal?

Now we return to the core question: Is this sharp rebound merely a technical oversold bounce, or the beginning of a new trend? The author will conduct a linear analysis from five dimensions.

Dimension One: Supply Side of Memory Chips — 2027 Is Already 'Sold Out.'

This is the most compelling fundamental signal driving the current rebound.

According to industry sources, memory manufacturers have already secured negotiations for full-year 2027 capacity allocation. The DRAM and HBM capacities of the three major suppliers ( $Samsung Electronics (005930.KR)$ , SK hynix, and Micron) have all been locked in by customers and declared sold out;

While NAND Flash isn't as severely constrained as DRAM, capacity through the end of August 2026 has also been largely booked—buyers are accepting advance deposit arrangements regardless of whether long-term agreements are signed, a rarity in memory industry history.

Pricing data sends a clear signal as well: global memory chip sales reached $74.6 billion in July 2026, setting a new all-time monthly record;

TrendForce forecasts that Q3 2026 DRAM contract prices will rise 13% to 18% quarter-over-quarter, while NAND Flash prices will increase 10% to 15%.

According to Counterpoint, Samsung Electronics reclaimed the top spot in the global DRAM market in Q2 with a 39% market share, $CXMT Corporation (688825.SH)$ Fastest-growing and favored by institutions to become the fourth DRAM giant.

JPMorgan and $Morgan Stanley (MS.US)$ both noted that the tight supply-demand dynamics for DRAM and NAND, driven by AI and servers, will persist at least through 2028. This cycle is fundamentally different from previous ones—memory chips have evolved from being cyclical peripherals tied to PCs and smartphones into"an increasingly critical bottleneck"。

Dimension Two: Advanced Process Nodes and AI Compute Power—Demand Has Far From Peaked.

$Taiwan Semiconductor (TSM.US)$ raised its full-year 2026 revenue growth guidance to over 40%. Its stock price climbed steadily from around $302 at the end of 2025 to $417.17 on August 4, marking a year-to-date gain of 40.13%, with an intraday high of $479—the all-time peak—reached on June 30.

Despite the sharp pullback in July, institutional sentiment toward Taiwan Semiconductor remains unwavering—according to Westock, 45 institutions issued views in August, with 98% recommending Buy or Overweight. The average price target stands at $537.70, implying approximately 29% upside from current levels.

$NVIDIA (NVDA.US)$ Regarding NVIDIA, Westock similarly reported that 56 institutions set an average price target of $314.29, representing roughly 48% potential upside from the August 4 closing price of $211.94, with 95% of institutions maintaining Buy or Overweight ratings.

More importantly, on August 5, Samsung Electronics unveiled its new 3D memory roadmap—zHBM technology—which vertically stacks high-bandwidth memory directly onto AI accelerators, delivering performance roughly eight times that of the upcoming HBM5. This signals that the AI memory race is far from over, and ongoing technological iteration will continue to fuel a new capital expenditure cycle.

Dimension Three: Fund Flows—Smart Money Hasn’t Exited.

Despite the sharp July sell-off causing panic, ETF fund flow data shows that medium- to long-term capital has not only refrained from retreating but is actually accelerating its positioning.

ChinaAMC's STAR Market Semiconductor ETF saw net inflows of RMB 27.181 billion over the past 20 days, $ChinaAMC STAR50 ETF (588000.SH)$ with net inflows of RMB 13.236 billion over the past 5 days, $300ETF (510300.SH)$ and net inflows of RMB 47.774 billion over the past 20 days, indicating balanced allocation between broad-based large- and small-cap ETFs and hard-tech sectors.

Year-to-date, $Huatai-PB SSE KSE China Korea Semiconductor ETF(QDII) (513310.SH)$ it has gained 78.97% cumulatively; Penghua’s STAR Market Semiconductor Equipment ETF rose 73.27%, while semiconductor equipment ETFs from万家and ChinaAMC increased by 67.56% and 67.25%, respectively—clearly confirming a consistent annual investment theme that has never been interrupted.

In the Hong Kong market, $Dacheng Hang Seng Technology ETF(QDII) (159740.SZ)$ funds have recorded net inflows for 19 consecutive days, totaling over RMB 2.5 billion, with fund units outstanding reaching a record high. The southbound capital’s trading pattern has also shifted from"selling internet stocks and buying chips"prior to July to"Buy internet and AI application plays", as the market's pricing of the AI theme is shifting from"hardware infrastructure"phase to"application monetization"phase.

Dimension Four: Valuation and Technicals—Fragility in High-Level Rebounds.

Despite strong fundamentals, we cannot ignore valuation-related risks.

According to Fazen.markets citing Barron's data, since January 2025, the combined market capitalization of core AI semiconductor companies (NVIDIA, AMD, Taiwan Semiconductor) has risen from approximately $4.8 trillion to over $7.3 trillion, an increase of roughly 150%.

The average forward P/E ratio of these companies has reached 45x, compared to the semiconductor sector’s 10-year historical average of just 22x.

Chief Investment Officer of Deutsche BankUlrich StephanHis team noted that despite still exceptionally strong demand and earnings momentum, the recent price correction has not been accompanied by a corresponding deterioration in fundamentals, suggesting instead that the market is undergoing a rational reassessment of previously inflated expectations, with further volatility possible in the near term.

Morgan Stanley strategistMike WilsonHis team is more cautious, noting that a technical rebound in chip stocks after a pullback of over 20% is unsurprising, but this does not necessarily mean the sector can regain market leadership—"The market rally is broadening across more sectors,"with consumer discretionary and transportation sectors potentially becoming new drivers of market upside.

Dimension Five: Tail Risks – Uncertainties Around Policy and Competitive Landscape.

The U.S. government’s proposal to ban imports of new Chinese data center equipment continues to reverberate, while DeepSeek’s release of its next-generation AI large model, DeepSeek-V3.1—which uses the UE8M0 FP8 precision format designed for next-gen domestic chips—further strengthens the logic for domestic substitution.

Uncertainty remains around NVIDIA's H20 chip exports to China, which is bullish for domestic semiconductors and adds unquantifiable policy risk to the global AI chip supply chain.

In conclusion

The supply side of memory chips has already shown a historically rare"Sold out by 2027"signal. Combined with continuously rising DRAM contract prices, this indicates that the industry’s upcycle will last far longer than the market anticipated during its panic in July;

Second-quarter earnings reports from major cloud computing companies have collectively confirmed a positive AI"Input–Output"feedback loop—significant increases in capital expenditures are not reckless spending but are instead grounded in accelerating cloud revenue growth and record-high backlogs;

The sell-off triggered by hedge fund forced liquidations was fundamentally a liquidity and leverage event, not a deterioration in fundamentals. Once the last"forced seller"exited the market, prices quickly reverted to a reasonable valuation range.

However, investors must clearly recognize the following risks:

The margin of safety at the valuation level remains thin—a forward P/E ratio of 45x implies that any earnings shortfall could trigger another sharp correction;

Technically, the SOX index has not yet effectively reclaimed key moving averages, and bullish-bearish tug-of-war will remain intense in the near term;

On the policy front, escalating U.S.-China tech tensions could at any time introduce new uncertainty shocks to the sector.

For investors:

First, the supply-demand tightness in the memory chip segment is locked in through 2027–2028;

Second, the long-term thesis for AI computing chips (NVIDIA, AMD, Taiwan Semiconductor) remains intact, though valuations are elevated in the short term;

Third, closely monitor capital expenditure execution and AI monetization progress by cloud computing giants, as this serves as the anchor for end-demand underpinning the entire semiconductor upcycle—any weakening of this anchor would necessitate a systemic repricing of the entire sector.

If the direction seems unclear, it may be prudent to hold cash and wait for the right opportunity.

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