My conclusion is simple: the true end of the tech rally is not the Fed’s additional 25 basis points, but rather industry overcapacity and the falsification of EPS growth. Before these two signals emerge, a sharp drop like the one on June 5th is more like “reversing to pick someone up” than “a crash with fatal consequences.” This statement is the core theme of this report and my guiding principle for positioning during this round of rate hike fears. The U.S. May nonfarm payrolls added 172,000 jobs, significantly exceeding the market expectation of 88,000, pushing the probability of rate hikes this year upward to 63% and nearing 100% before January next year. On that day, the Philadelphia Semiconductor Index fell over 10%, and the Nasdaq dropped 4.18%. However, I will not abandon the tech sector based on a single macro data release, because historically, what truly determines whether tech stocks can weather interest rate volatility has never been interest rates themselves, but whether EPS continues to be revised upward. [1] [2]

My assessment is that AI trading has moved from a “broad rally narrative” to a “narrowing validation” phase. This is no longer a stage where you can indiscriminately buy all high-Beta tech stocks, but it is also not a stage where the AI theme has run its course. Core holdings should be allocated to leading assets with high order visibility, stable gross margins, strong cash flow quality, and EPS still subject to upward analyst revisions. For quantum computing, aerospace, and certain small-chip stories lacking a clear profit闭环, consider reducing positions during rallies or using options strategies to hedge portfolio volatility.

I. Fact Judgment: The rate hike panic was a trigger, not the primary cause.

The market reaction on June 5 was extremely volatile, but the chain of events was not complex. According to official BLS data, U.S. non-farm payrolls increased by 172,000 in May, the unemployment rate held steady at 4.3%, and employment figures for March and April were collectively revised upward by 93,000. The strong employment data intensified market concerns about persistent inflation and the possibility of further rate hikes. [3] Reuters and market reports showed that on the same day, the Nasdaq fell 4.18%, and the Philadelphia Semiconductor Index (SOX) dropped more than 10% in a single day, as investors rapidly repriced risk assets under the scenario of “higher for longer” interest rates. [1] [2]

I define this downturn as a concentrated release of interest rate shock combined with overcrowded trades. It will trim overextended valuations and force capital to exit assets with weak fundamentals, high elasticity, and low profit certainty. However, if demand for AI infrastructure orders, cloud provider capital expenditures, and GPU/optical modules/PCBs does not experience material downward revisions, the technology sector’s primary trend has not ended due to this single day’s decline.

II. Historical Review: The Lesson from 1999 Is Not to Chase Bubbles, But to Watch EPS

The dot-com bubble of 1999 is often cited as a warning for today’s tech stocks, but I believe this comparison must consider not only valuations but also profitability. At that time, the Federal Reserve entered a series of interest rate hikes, the Dow Jones remained largely flat, while the Nasdaq continued to surge sharply until its peak in March 2000. Institutional research cited by Moomoo notes that in 1999, Nasdaq 100 EPS grew by approximately 60%, significantly outpacing the Dow’s EPS growth; by Q1 2026, Nasdaq 100 EPS growth is around 36%, compared to just 4% for the Dow, once again revealing a divergence in earnings performance. [2]

Nasdaq Investment Intelligence’s research on interest rate hiking periods over the past three decades also supports the same conclusion. Among the 13 interest rate hiking phases lasting at least six months between 1985 and 2021, the Nasdaq-100 delivered an average cumulative return of 22.6%, outperforming the S&P 500’s 11.3% and the Dow Jones Industrial Average’s 12.7%. During the period from October 1998 to January 2000, when the yield on 10-year U.S. Treasuries rose by approximately 2.2 percentage points, the Nasdaq-100 surged 165.3%, significantly outpacing the S&P 500 and the Dow Jones Industrial Average during the same period. [4]

The lesson I learned from this history is not that high valuations can rise forever, but that rising interest rates alone are not a sufficient reason to sell tech stocks. The real dangers lie in two things: first, when stock prices rise solely due to P/E expansion without corresponding EPS growth; second, when the industry’s competitive landscape begins to deteriorate, with leading companies’ gross margins and cash flows turning downward first. If neither of these occurs, rising interest rates are more likely to slow the pace of adjustment rather than directly signal the end of the dominant trend.

III. Valuation Framework: Short-term focus on momentum, long-term focus on margin of safety

I do not agree with mechanically judging whether AI leaders are in a bubble based solely on PE or PB percentiles. Over a short-term one-year horizon, stock prices are primarily driven by revenue growth rates, changes in ROE, and the direction of EPS revisions; over a three- to five-year horizon, PB, free cash flow yield, and capital return cycles truly determine long-term returns. Pacer ETFs’ research on the Nasdaq-100 shows that at the end of 1999, the Nasdaq-100 traded at approximately 73 times earnings with a free cash flow yield of only 0.76%; by the end of 2023, it traded at about 31 times earnings with a free cash flow yield of 2.68%. Moreover, the current scale of sales, profits, and free cash flow of leading companies is incomparable to that of internet bubble companies in 1999. [5]

Therefore, I classify AI core assets into two categories. The first category consists of “toll booth assets” with real orders, genuine gross margins, and actual cash flow, including AI server chains, advanced packaging, optical modules, PCBs, and core suppliers of cloud capital expenditures. The second category comprises high-beta assets that only promote distant narratives with unclear paths to profitability, such as certain quantum computing, aerospace, conceptual chip stocks, and software companies lacking order validation. For the former, monitor buying opportunities during sharp declines; for the latter, reduce risk exposure during rallies.

Four: Crowding level: This is a contraction, not the first top.

Currently, capital is clustering around AI core assets, creating a suction effect on dividend stocks, small-cap stocks, and non-core assets—this must be acknowledged. However, high congestion does not equate to a top. A true top typically requires three conditions to be met simultaneously: first, capital expenditures in the industry begin to show marginal slowdown; second, the competitive landscape among leaders deteriorates, with price wars or declining gross margins emerging; third, upward revisions to EPS cease and even turn downward. So far, this correction aligns more closely with the characteristics of a “left-side rotation from high to low” and “narrowing of the main theme,” rather than confirming the first intermediate-term top in AI. [2]

I view the period from late June through the July earnings season as a true validation window. A-share interim earnings previews, U.S. tech earnings guidance, cloud providers’ capital expenditure outlook, and semiconductor supply chain order visibility will collectively determine whether this correction represents a healthy rotation or the beginning of a fundamental earnings disconfirmation.

V. My Investment Insight: Stick with the technology theme, but eliminate weak assets and retain strong ones

My investment principle is: allocate my core position to market leaders with EPS evidence, and avoid wasting risk budget on purely story-driven, high-beta assets. Within the AI infrastructure chain, I prefer companies with high order visibility, stable gross margins, strong cash flow, and exposure to essential, non-discretionary customer capital expenditure segments. I am willing to tolerate volatility in areas such as optical modules, PCBs, AI servers, advanced packaging, cloud infrastructure, and software platforms with pricing power.

This is not blind optimism. On the contrary, I believe the next month requires close attention to four key events: the June 10 CPI report—if core inflation rises unexpectedly due to oil price transmission, leverage should be reduced; oil prices and the Iran-U.S. situation—if oil remains elevated for an extended period, it will increase inflation persistence; the ECB and Bank of Japan meetings in mid-June, which will impact global liquidity; and Powell’s statement on June 18—if his language turns extremely hawkish, it will reshape the pricing of interest rate paths. Macro milestones determine the timing; EPS determines the direction.

Six: Reverse to pick up, but only pick up those with performance.

I won’t abandon the tech sector because of the single-day plunge on June 5, but I’ll upgrade my portfolio from “buying AI stories” to “buying AI income statements.” If a company can consistently deliver on orders, gross margins, cash flow, and EPS, its decline amid interest rate shocks looks more like an opportunity; if a company has only concepts and no path to profitability, it should be trimmed even during rebounds.

The bottom line remains the same as the opening statement: the end of the tech rally is driven by industry overcompetition and the falsification of EPS, not the Fed’s additional 25 basis points. This current correction is a “pullback to pick up passengers,” not a “crash and burn”; hold onto positions with solid earnings and wait for the four key milestones to unfold.

This report has been prepared by a guest analyst. The views expressed in this report are those of the author alone and do not represent the views of the BIT platform. This material is for informational purposes only and does not constitute investment advice.

References

1. Reuters, Nasdaq, S&P futures decline as semiconductors weigh in, payrolls in focus, June 5, 2026. https://www.reuters.com/business/nasdaq-sp-futures-slip-semiconductors-drag-payrolls-focus-2026-06-05/

2. Moomoo / Wallstreetcn: Persistent headwinds from crowding, valuations, and interest rate hike expectations: Is tech still worth holding? https://www.moomoo.com/news/post/71180799/persistent-headwinds-from-crowding-valuations-and-interest-rate-hike-expectations

3. U.S. Bureau of Labor Statistics, The Employment Situation — May 2026. https://www.bls.gov/news.release/empsit.htm

4. Nasdaq Investment Intelligence: What to Fear and What Not to Fear When the Fed Tightens. https://indexes.nasdaqomx.com/docs/Interest%20rate%20sensitivity%20of%20the%20Nasdaq-100.pdf

5. Pacer ETFs, The NASDAQ-100: Is This Time Really Different? https://www.paceretfs.com/resources/resource-library/the-nasdaq-100-is-this-time-really-different

6. Northwestern Mutual: The Fed Is Raising Rates—Here’s How Markets Have Performed in the Past. https://www.northwesternmutual.com/life-and-money/the-fed-is-raising-rates-heres-how-markets-have-performed-in-the-past-0/