US Stocks: Seeking an Opportunity for a Semiconductor Sector Rebound

■ US stock market funds are shifting from artificial intelligence (AI) and semiconductor sectors to cyclical stocks and laggard sectors.  

■ Strong semiconductor demand could also be interpreted as a cost increase, which, from an index perspective, could actually be a negative factor. 
 
Looking at the performance of various US stock sectors, market funds have been shifting their allocation direction almost monthly since April. Affected by the US-Iran military conflict, the S&P 500 fell 5.1% in March; as both sides shifted to peace talks in April, the S&P 500 rose 10.4%, with all but one of the 11 sectors rising, showing a broad-based market rally. Although the market was concerned about the stalled progress of peace talks in May, with only three sectors rising that month, the information technology (IT) sector rose 17.4% in April and 15.9% in May, driven by large-scale investments in AI infrastructure by major cloud computing companies (Hyperscaler), pushing the S&P 500 up another 5.1% in May. Entering June, the IT sector corrected by 3.3%, but with the US and Iran formally entering a substantive peace negotiation phase, market concerns about a US economic slowdown and rising inflation have significantly eased. Funds have shifted to cyclical stocks and previously lagging stocks, with the S&P 500 index only falling by 1.1%, indicating that investor risk appetite remains stable.  
 
   The June correction in the IT sector was mainly influenced by two factors: first, large cloud computing companies announced they would lease out their existing AI infrastructure, raising concerns about over-investment in AI; second, major US smartphone manufacturers, which had raised product prices due to semiconductor supply shortages, were reportedly considering sourcing semiconductors from Chinese companies, raising concerns that the pricing power of semiconductor companies outside of China might weaken. However, the former can also be seen as large cloud computing companies expanding their profit sources and diversifying their businesses; the latter is expected to gradually dissipate as strong semiconductor demand continues to be validated. 
 
Going forward, semiconductor company earnings reports will become the focus of market attention. Preliminary results for the April-June quarter released by major South Korean semiconductor companies indicate that both sales and operating profit are expected to exceed market expectations. A major Taiwanese wafer foundry will release its June revenue on the 10th and its quarterly financial report on the 16th, while a major Dutch semiconductor equipment company will also release its results on the 15th. These results could be a significant catalyst for a renewed rally in the semiconductor sector. However, a substantial increase in semiconductor companies' profit margins would not only signify continued profit improvement but could also reflect persistently high semiconductor prices, increasing cost pressures for downstream customers such as large cloud computing companies. Therefore, the market will also be watching the subsequent financial reports of large cloud computing companies to see if they can further alleviate concerns about over-investment in AI.