Thursday’s sector selloff forced retail investors who had chased semiconductor stocks higher in the short term to absorb drawdowns, as geopolitical risks, changing capital expenditure expectations, and inflation concerns combined to weigh on tech stock performance. Although earnings expectations for the tech sector remain bright, market views are clearly divided, and concentrated retail buying did not drive overall retail fund inflows across the entire market, while volatility risks in AI-related investments continue.
Over the past week, many retail investors concentrated on adding positions in core artificial intelligence semiconductor names and suffered losses during Thursday’s market plunge. JPMorgan strategist Arun Jain, based on trading data from last Thursday through this Wednesday, noted that individual investors continued to increase holdings in chipmaking, cloud services, and storage equipment companies, while buying in the “Magnificent Seven” tech stocks cooled somewhat. In a report to clients on Wednesday, he mentioned that purchases of individual tech stocks reached their highest level since the momentum trade retreat in July. Affected by heightened Middle East tensions and combined market concerns over high AI infrastructure spending, the chip sector led the S&P 500 lower on Thursday, with the Philadelphia Semiconductor Index plunging 6.7%, marking its largest one-day decline since June.
Among the top names on retail buying lists were SanDisk (SNDK), TSMC (TSM), and Nebius Group (NBIS), with Nebius Group recently gaining popularity on retail investment forums, and all three stocks falling no less than 4% on Thursday. As of Tuesday, SpaceX (SPCX) ranked fourth on the retail buying list, but after the company released strong earnings and its stock rose 7.8% on Wednesday, investors chose to sell and exit.
Retail investors did not withdraw from AI-related trades, and their investment focus gradually shifted toward a broader range of tech sectors, with tech ETFs attracting stronger fund interest and weekly inflows ranking second in history, with part of the money coming from bargain hunting in the latter part of last week. Last Friday, single-day inflows into tech ETFs hit a record high, driving this week’s buying to 2.1 standard deviations above the historical average, with the VanEck Semiconductor ETF being a product that drew relatively high attention. Since several hyperscale data center operators reported strong earnings in July, retail investors have remained bullish on the stocks of the seven tech giants, and this round of position switching shows that amid heightened market volatility, investors have not abandoned the AI theme but have broadened their stock selection range. Joe Gilbert, portfolio manager at Integrity Asset Management, believes that the earnings sustainability of the AI ecosystem has exceeded initial expectations, driving capital to spread from the seven giants to the entire tech sector.
The tech sector is the core driver of US corporate profit growth this year and supports investors’ willingness to participate, while market concerns about an AI bubble have always existed. Data compiled by Bank of America show that S&P 500 information technology constituents are expected to post third-quarter earnings growth of 66%, a increase second only to the energy and communication services sectors. Gilbert added that in a high-interest-rate environment, beyond the seven tech giants, there are still companies that can achieve strong earnings growth on lower valuations. This round of fund rotation occurred during a period of rising tech selling pressure, as geopolitical conflicts pushed up energy prices and inflation concerns resurfaced. On Thursday, the Bloomberg Magnificent Seven Index fell as much as 3.8%, triggered by Meta Platforms (META) raising its annual capital expenditure plan, while the Nasdaq 100 fell 3.2% intraday. JPMorgan data also showed that market enthusiasm for tech stocks did not spread to the whole market, and overall retail fund flows for the week remained weak.
