Author: qinbafrank
After enduring a tense weekend, how should we view this week’s market? Last Friday evening, we provided a detailed analysis of the key factors influencing the U.S. stock market’s movement in the latter half of last week—initially, the risk was flagged as early as Wednesday night on Space. (Related reading: Warning of U.S. Market Pullback: What’s the Real Risk with AI? Understand the New Capital Flows in Software Stocks, Optical Interconnects, SpaceX, and Bitcoin.)
The core logic behind this adjustment:
AI and semiconductor stocks experienced excessive short-term gains, driven by strong FOMO, leading to an overcrowded trading structure—parabolic rallies are inherently unsustainable. This was followed by natural risk-off sentiment ahead of CPI, PPI, and FOMC announcements, compounded by SpaceX’s massive IPO roadshow and subscription demand draining liquidity, along with strong employment data reinforcing concerns that high interest rates will persist—or even lead to renewed rate hikes—ultimately triggering a concentrated deleveraging in popular tech stocks. Of course, this is a familiar story; the key question now is how to interpret what comes next.
1. Let's first review the several adjustments over the past half year.
Last December, there was a similar tech stock sell-off. At that time, Oracle first triggered concerns over AI return on investment and capital expenditures, followed by further selling pressure after Broadcom’s earnings report—until Micron’s strong earnings and relatively mild inflation data helped restore market sentiment. Both events were driven by interest rate expectations, but the key difference is: at the end of last year and beginning of this year, the market was more concerned about the numerator—AI capital expenditure returns—whereas this time, there is no consensus that the “AI thesis has collapsed”; instead, investors are more focused on the denominator—interest rates, inflation, the Fed, geopolitics, and liquidity.
The storage sector has been one of the strongest themes in this round of AI-driven trading, with the highest gains, strongest fundamentals, and greatest profit elasticity—making it most vulnerable to being targeted for concentrated profit-taking during crowded trade unwinds. For example, Micron’s stock fell from its June 3 high of $1,089.29 to a Friday close of $864.01, a closing pullback of approximately 20.7%; if measured from the intraday low of $850.18, the maximum drawdown reached about 22.0%. This exceeds the roughly 20% pullback seen in mid-May but has not yet reached the extreme panic levels seen during the March conflict period.
As a 3x leveraged ETF for the Korean market, KORU can serve as an approximate indicator of risk appetite for Korean tech and memory stocks, but it should not be equated directly with the Korean index itself. KORU declined from its June 1 high of 1,279.70 to a closing price of 610.01 on June 5, representing a drawdown of approximately 52.3%; if measured from its intraday low of 599, the drawdown is approximately 53.2%.
In terms of magnitude, this correction has exceeded the one in mid-May;
From a time perspective, this round has seen four consecutive trading days of adjustment, nearing the recent short-term primary decline windows.
Therefore, a relatively reasonable judgment is: against the backdrop of AI fundamentals remaining unrefuted, the majority of the short-term downtrend may already be complete, and the probability of further sharp declines is decreasing.
So, a continued plunge this week isn't guaranteed, but a rapid V-shaped recovery is unlikely—instead, the market is more likely to enter a sideways consolidation or a low-volume gradual decline. However, as long as U.S. Treasury yields remain elevated and the CPI or FOMC announcements haven't been released, the market will likely remain highly volatile, defensive, and focused on waiting for confirmation and improved conditions.
2. Now let's look at the major events from the weekend until today.
1) Tensions persist between Israel and Lebanon, as Iranian missiles and drones begin striking Israel. While Trump pressures Netanyahu to avoid retaliation, he continues to maintain the U.S.-Iran nuclear deal channel. This development could disrupt oil prices and reignite concerns about inflationary pressures in the market.
However, there are currently no signs of a resurgence into full-blown失控.
Watching Trump's interview last night, he was strongly emphasizing that he will not allow the U.S.-Iran conflict to escalate.
2) NVIDIA and SK are expected to announce their collaboration plan on Monday. Huang's message was straightforward: shortages exist in memory, wafers, advanced packaging, and silicon photonics, and these shortages may persist for several years. This statement reconnects several market themes that had previously been discussed.
Under current market conditions, this may provide some support to the market, but it is unlikely to immediately trigger a reversal. Today, observe the market dynamics: after an open lower, can core assets hold steady? Will companies with orders, customers, and established industry positions be the first to attract capital back?
If the core companies are stable while the speculative stocks are volatile, that’s a divergence.
If even the core company can't absorb it, this rebound will have poor sustainability.
3. Wait for the first signal from macroeconomic factors
Over the past two months since early April, the major market rally was triggered by three events unfolding sequentially from early to mid-April: first, the ceasefire in the Iran situation; second, a shortage in mining hash rate; and third, accelerated commercialization of AI.
April was characterized by "the resolution of macroeconomic risks → the AI industry thesis being amplified once again";
Now, the AI industry’s fundamentals are intact → but macroeconomic factors are suppressing valuations → so from a personal perspective, it’s best to wait for macro conditions to stabilize first.
To truly reverse the current trend, the market will likely first need a “stop-loss signal” at the macro level. It doesn’t necessarily require a major macroeconomic catalyst like the “Iran escalation” event in early April; more realistically, the market needs to see signs that the denominator is no longer deteriorating.
Why does the macro need to signal first this time?
The primary cause of this decline is not that the AI narrative has collapsed, but rather a combination of factors—interest rates, inflation, the Fed meeting, geopolitical tensions, massive IPOs draining liquidity, and excessive market enthusiasm and overcrowding—all converging to pressure valuations and trigger deleveraging.
In other words, the market is no longer asking, “Is there still demand for AI?”
but rather asking:
If interest rates continue to rise, can AI stocks sustain such high valuations?
Therefore, this time around, the priority is not to first examine the industry narrative, but to determine whether macroeconomic pressures have stopped rising.
The sequence is likely similar: first, macro-level hemorrhaging must be stopped—at minimum, CPI must not spike, U.S. Treasury yields must not continue rising, and the SpaceX IPO should ideally release some liquidity; the FOMC must not further hawkish. Only after pressure on the denominator eases will the market return to focusing on AI as the numerator—re-engaging with themes of compute shortages, rising storage costs, and accelerated AI capex and commercialization.
To reverse the current trend, first look for macroeconomic signals—but the macro environment doesn’t need to fully improve; it just needs to stop worsening. Once macro conditions stabilize, the AI industry narrative will quickly resume. This is also what we discussed last Friday night: a complete reversal is unlikely in the short term, so patience is required.