The tech sector collectively hit the brakes—who’s secretly stepping on the gas?

(This article was written by Youdianshu and published by TMTPost with authorization.)

By Youdianshu · Original from Digital Economy Studio,Author | You Shu

Recently, China’s A-share tech sector has been experiencing persistent volatility.

Last Thursday, the STAR 50 Index closed down 7.7%, plunging as much as 8% intraday—the worst single trading day for the STAR Market since April 7, 2025.

But the story didn’t end there. Over the following sessions, tech stocks continued to drift lower. Although the A-share market saw a rebound on July 9, it pulled back again on July 10, with the STAR 50 Index closing down 5.53%. Over the past three trading days, two long red candles sandwiched a large green one—this isn’t the establishment of a new trend, but rather high volatility stemming from elevated valuations, as capital rapidly rotates within the computing power supply chain and positions undergo intense turnover.

What exactly happened behind this shift—from previous exuberant gains to current panic-driven swings? Today, we’ll examine this pullback from multiple angles: market action, industry fundamentals, sentiment, and valuation—and use four key figures to outline its contours.

Recent sharp declines have hit the brakes on the tech sector’s rally. On July 10, the STAR 50 Index fell 5.5%, a notably steep drop in its historical context.

Among its constituents, Zhongke Feice and Huahai Qingke dropped more than 15%, Montage Technology fell over 14%, and Advanced Micro-Fabrication Equipment declined more than 10%. GigaDevice hit its daily trading limit down, while Cambricon and Hygon Information each slid over 10%. In the CPO segment, Zhongji Xuchuang, TFC Optical Communication, and Eoptolink all plunged sharply.

This type of sell-off cannot be explained by a single negative catalyst. On the surface, it reflects emotional spillover from the previous night’s plunge in U.S. AI hardware stocks; deeper down, it stems from profit-taking by investors who had accumulated substantial gains in the first half of the year.

Objectively speaking, this was not a indiscriminate market collapse. After opening lower on the morning of July 2, some capital still stepped in to absorb shares at depressed levels. However, with short-term profits excessively large, concentrated profit-taking triggered a 'long-squeeze' amplification effect. On July 10, the ChiNext Index fell 4.37%, and the Shanghai Composite Index dropped 1.00%. Yet this was not a full-blown crash—95 stocks across the market still reached their daily trading limits up, while pharmaceuticals, defense, and real estate sectors strengthened against the broader trend, indicating that capital hasn’t exited equities altogether but has rotated from tech hardware into low-valuation defensive sectors.

This also implies the downturn isn’t driven by sudden fundamental deterioration, but rather a rebalancing of position structures following rapid gains. The electronics sector surged 86% in the first half of the year, leaving a large pool of unrealized gains ripe for realization. A single external trigger then prompted a wave of concentrated selling—this sharp decline is thus a result of trading dynamics, not a reversal at the industry level.

The catalyst for this volatility came from an industry-related news item across the Pacific.

Previously, Meta was reported to be planning to lease out its idle AI computing capacity. More specifically, the rental price for NVIDIA GPUs dropped from $6.11 per hour to $4.22 per hour within three weeks—a 31% decline.

A 31% price drop indicates that last-generation computing capacity is entering a cycle of oversupply—not a broad-based industry downturn.

Global capital markets reacted swiftly: South Korea’s KOSPI Index has retreated roughly 20% from its monthly high, with Samsung Electronics down 6.9% and SK Hynix falling 5%. A-share memory chip and optical module stocks faced parallel pressure.

But there’s a key distinction here: Meta is leasing out last-generation computing power (H100/H200), while the latest NVIDIA Blackwell architecture (GB200/GB300) remains in short supply. Institutions widely characterize this as a 'structural mismatch'—excess capacity in older-generation chips and tight supply in advanced ones—not a sign that demand for AI computing power has peaked.

In fact, Meta has been the most aggressive buyer of computing power over the past year: it signed a six-year contract worth over USD 21 billion with CoreWeave, a nearly USD 27 billion agreement with NEBIUS Group, and secured a chip supply deal with AMD capped at USD 60 billion over the next five years. The reason it’s now leasing out older-generation capacity is precisely because new capacity is about to come online, and it needs to monetize its legacy assets.

Notably, on July 9, ChangXin Memory Technologies, China’s leading DRAM chipmaker, announced it would officially open subscription for its STAR Market IPO on July 16, aiming to raise RMB 29.5 billion—setting a record for the largest A-share IPO since 2026. This news triggered a broad rally across semiconductor equipment, materials, advanced packaging, and related segments of the supply chain.

According to comprehensive analyses, the computing power supply chain is transitioning from a 'capital expenditure expansion phase' into a 'technology iteration digestion phase.' Falling lease prices signal the clearing of outdated capacity and herald the takeoff of new capacity. For the industry, this shift means competition will move from 'availability' to 'quality'—companies with strong capabilities in technological iteration will actually widen their lead during this shakeout.

On July 10, the number of stocks hitting their daily trading limits surged to 95, while the STAR 50 Index plunged 5.53% and the semiconductor sector tumbled.

Behind this extreme divergence is rapid capital rotation from high-flying to lower-valued sectors.

This is first evident in consolidation among high-flying names: CPO and certain AI chip stocks have entered an earnings-valuation digestion phase. Accelink has pulled back more than 30% from its year-to-date peak, Cambricon has experienced sharp volatility near RMB 1,400, and Hygon Information has undergone consecutive corrections. These segments saw excessive gains in the first half of the year and now require time for valuations to realign with fundamentals.

Meanwhile, undervalued stocks are gaining momentum. On July 10, capital flowed into defensive, low-valuation sectors such as pharmaceuticals, defense, and real estate, with CRO/CMO, biologics, and cinema chains leading the gains. Over 4,500 stocks traded higher during the morning session on July 10, indicating liquidity remains ample—it’s just shifting away from tech hardware toward other thematic drivers.

This simultaneous rise and fall reveals that capital isn’t exiting tech altogether but rotating within the sector itself. Legacy themes (optical modules, select AI hardware) are digesting elevated valuations, while new themes (computing power leasing, AI servers, semiconductor equipment) are absorbing inflows. Rapid rotation between subsectors underscores the resilience of the tech space—money hasn’t left; it’s simply moved elsewhere.

Assessing the market outlook ultimately comes back to earnings and industry trends.

On July 8, Inspur Information surged by its daily trading limit in a straight-line rally after releasing a profit forecast: the company expects net profit attributable to shareholders for the first half of the year to reach RMB 2.6–3.1 billion, an increase of 226%–288% year-over-year. Based on this estimate, its H1 profits have already surpassed its full-year 2025 projections.

On July 9, SMIC rose 13.74%, hitting a record high share price and pushing its total market capitalization above RMB 1.48 trillion. Although it pulled back slightly on July 10, its A-share listing still closed up 0.99%, while the Hong Kong-listed shares saw only a normal technical correction.

Another notable figure is RMB 2.93 trillion—the combined trading volume of the Shanghai and Shenzhen stock exchanges on July 9. On the morning of July 10, turnover briefly spiked to RMB 2.17 trillion. Market liquidity remains ample, with the size of the STAR Market semiconductor ETF continuing to expand. Substantial capital is positioned in tech sectors, ready to move swiftly once industry fundamentals are confirmed.

So, how should we view the market going forward?

In summary, in the near term, high-flying computing hardware stocks are likely to remain in a consolidation phase. Within this volatility, stocks with strong earnings visibility may stabilize first. Over the medium term (1–3 months), the tech rally is shifting from speculative plays on anticipated capital expenditure toward actual earnings delivery and domestic substitution. During the interim earnings season, a wave of companies has reported better-than-expected results, and capital will continue flowing into subsectors backed by real orders, profitability, and valuation safety margins. The long-term logic of domestic substitution remains intact—and is even strengthening amid ongoing U.S. restrictions on chip exports.

From a long-term perspective, computing power is the 'electricity' of the AI era, and demand is far from reaching its ceiling. Outdated capacity will be phased out, but the value of advanced capacity will become even more pronounced. Domestic computing chips—from companies like Cambricon, Hygon, Moore Threads, and MetaX—are at a critical juncture transitioning from technical validation to large-scale production. This process is unlikely to be derailed by a single market correction.

Price fluctuations on candlestick charts easily grab attention, but what matters more than short-term market moves is the tangible evolution of industry fundamentals.

On the demand side, major Chinese internet companies continue to maintain high levels of AI-related capital expenditure, and the procurement share of domestically produced computing chips is steadily rising. On the supply side, Cambricon’s Siyuan 590 and Hygon’s DeepComputing series have entered large-scale delivery phases, approaching the inflection point where domestic chips transition from 'usable' to 'reliable.' On the policy front, amid ongoing tightening of U.S. chip export controls, the pace of domestic substitution has not stalled—in fact, it is accelerating to close the gap.

These developments won’t immediately show up in stock prices; in the short term, valuations may still undergo digestion and shares may change hands, leading to continued volatility. Yet they form the foundation of an emerging industry—not based on hype, but on real orders; not on expectations, but on actual production capacity. For the sector, this isn’t a sign of winter—it’s an evolution from 'storytelling' to 'performance-driven' growth.

Market movements will adjust, and valuations will fluctuate, but once genuine industrial takeoff begins, it is difficult to reverse. For investors who have followed this sector over the long term, the current moment may not be the most comfortable—but it could very well be a critical window to observe qualitative transformation in the industry.

(Partial market data referenced in this article are sourced fromWind, East Money, and publicly disclosed information. The content is provided for reference only and does not constitute any investment advice. The market involves risks; please exercise caution in your investment decisions.)

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