https://t.co/yvNqcjfnJZ [ Satoshi Ohkawa ]: The AI Market Panic—What Happened, and What’s Next? [Rakuten Securities Toushiru] Toushiru [Rakuten Securities] #AISummary AI-related stocks plummeted following the U.S. midterm elections! Concerns over data center regulations and the fate of the semiconductor bubble. 🔳 Stock market crash triggered by the U.S. midterm elections Following the Democratic Party’s decisive victory in the U.S. midterm elections on November 3, fears grew over potential regulations on data center construction. On November 5, U.S. markets saw the Dow Jones fall approximately 3.4%, NASDAQ drop over 5%, and the semiconductor-focused SOX index decline by around 12%. On November 6, the Nikkei 225 recorded its third-largest single-day drop in history. 🔳 Underlying cause of AI stock decline: Concerns over funding sustainability The drop in AI-related stocks was not only due to election results but also intensified by growing concerns over the profitability of data center investments. Following CoreWeave’s debt issues, investors became increasingly aware of the risk that AI firms continuing massive capital expenditures could face future funding shortages. 🔳 Alarm over expanded capital spending by major tech firms As Meta, Alphabet, Amazon, and others ramp up AI-related infrastructure investments, worries are mounting over deteriorating free cash flow and declining profitability in their core businesses. Even companies with ample current liquidity may face heavier financial burdens in the future if investment expansion continues unchecked. 🔳 AI search threatens existing advertising business models With AI-generated responses becoming widespread on Google Search, there is a risk of reduced clicks on traditional search results and ads. This structural issue—where companies expanding AI investments risk undermining their own existing revenue streams—is drawing increasing scrutiny. 🔳 Democratic proposals for data center regulations amplify market unease Survey data showed that approximately 75% of Democratic supporters and 50% of Republican supporters oppose new data center construction. Reasons include rising electricity and water costs, noise pollution, and employment impacts. The rise in Democratic governors has heightened fears of stricter regulatory measures. 🔳 The AI stock sell-off may be an overreaction Ohkawa analyzed that panic selling contributed to this decline. However, he noted that market volatility indicators have not reached levels seen during past major market disruptions, suggesting that the overall growth trajectory of the AI industry is not at risk of halting at this stage. 🔳 Data center construction may shift to other U.S. states Even if construction is restricted in certain states, companies are likely to relocate projects to states that permit such development. While delays and additional costs may arise from changing plans, demand for AI infrastructure itself will not disappear. 🔳 India and Brazil emerge as potential overseas destinations for data centers If regulatory pressure intensifies domestically in the U.S., overseas relocation becomes viable. India offers 20-year tax incentives and infrastructure support for data center investments; Brazil also provides tax benefits. However, challenges remain regarding power supply, telecommunications infrastructure, legal frameworks, and security. ListItemIcon AI development is directly tied to national security AI is becoming essential not only for economic growth but also for cybersecurity and defense technologies. If the U.S. halts AI development, it risks falling behind technologically to China, Russia, and others—making it politically and strategically difficult to fully halt AI investment from a national security standpoint. ListItemIcon Space-based data centers as a future possibility To circumvent terrestrial power shortages and construction restrictions, proposals have emerged to place data centers in space. While solar power could be harnessed, significant technical hurdles remain—particularly around heat dissipation—and realization would require considerable time. ListItemIcon The next focus of AI investment: Power infrastructure Rather than merely restricting data center power consumption, discussions are shifting toward expanding electricity generation and transmission capacity. Next-generation nuclear technologies such as Small Modular Reactors (SMRs) and related power infrastructure companies may once again attract market attention. ListItemIcon Memory semiconductors face high bubble-burst risk DRAM and NAND prices have surged dramatically, with some related companies achieving profit margins of 70–80%. Since this profit growth stems primarily from price increases rather than volume growth, a price correction could lead to rapid earnings deterioration. ListItemIcon Chinese manufacturers’ increased production threatens memory price stability Increased supply from Chinese firms such as CXMT and YMTC could shift memory market supply-demand dynamics. Current high prices are unsustainable; market forecasts anticipate declining profits for related companies within a few years. Consequently, memory stocks are being valued at low P/E ratios due to concerns over future price declines. ListItemIcon Kioxia’s low P/E reflects future earnings concerns Despite strong current financial performance, Kioxia’s P/E ratio remains in the low double digits. This reflects skepticism about the sustainability of its current profits—driven largely by temporary price surges—and suggests that current earnings have not been fully reflected in its stock price. ListItemIcon Semiconductor manufacturing equipment is more stable than memory firmsSemiconductor manufacturing equipment companies such as Advantest and Tokyo Electron are influenced not only by memory prices but also by global semiconductor equipment investment. Even if data center construction shifts outside the U.S., demand for equipment remains, leading to the view that these firms offer more reliable medium- to long-term growth potential than pure-play memory companies. 🔳 Lower memory prices benefit other industries A decline in memory prices reduces manufacturing costs for products such as personal computers, smartphones, and gaming consoles. For gaming-related companies like Nintendo and Sony, this could improve profit margins, potentially prompting a shift in investment from semiconductor-related stocks to consumer product manufacturers. 🔳 Major IT companies also benefit from lower memory prices Large hyperscalers such as Amazon and Google can reduce their equipment investment costs when memory prices fall. Additionally, if new data center construction is restricted, the scarcity value of existing infrastructure may rise, giving these established players a competitive advantage over emerging data center firms. 🔳 Japanese stocks offer growth opportunities beyond high-tech Japanese companies are currently performing strongly, presenting investment opportunities across diverse sectors including banking, trading companies, retail, and food. While the Nikkei Average is heavily influenced by semiconductor-related stocks, the TOPIX is supported by a broad range of industries and has demonstrated relatively stable upward momentum. 女星关注能提价企业的盈利能力 Companies like Saizeriya and Fast Retailing, which have successfully maintained customer bases while implementing price increases, are drawing attention. If firms can raise prices within acceptable limits for consumers, they may improve profit margins even in an inflationary environment. 女星日本食品企业海外扩张成增长动力 Food companies such as Kikkoman are seizing growth opportunities abroad fueled by rising global popularity of Japanese cuisine. As sushi chains expand internationally and Japanese culinary culture spreads, demand for soy sauce, wheat flour, and other ingredients is expected to rise. Companies capable of monetizing Japan’s unique strengths in global markets are being valued highly. 女星游戏相关股票因半导体价格下跌而重估 Nintendo and Sony have faced increased manufacturing and development costs due to soaring memory prices. If memory prices normalize going forward, improved profit margins are anticipated, potentially leading to a shift in market valuation from semiconductor manufacturers to gaming and entertainment companies. 女星AI相关股票的短期调整与长期增长是不同问题 Okawa noted that while short-term volatility may persist due to concerns over data center regulations and the profitability of equipment investment, the competition in AI development will not slow down. Although changes in construction locations or investment plans may impact earnings, the medium- to long-term growth potential remains substantial. 女星未来投资策略需分散于半导体之外 It is important to diversify investments beyond AI and semiconductor-related stocks, also considering sectors such as food, retail, gaming, entertainment, banking, trading companies, and power infrastructure. A diversified portfolio combining high-growth tech stocks with relatively undervalued value or defensive stocks is seen as an effective strategy during periods of market instability.