JPMorgan analysts, led by Nikolaos Panigirtzoglou, released a report on October 14 regarding capital flows and liquidity. The bank suggests that the factors which supported a recovery in AI infrastructure stocks during July are currently absent, making a rapid rebound unlikely.
In July, the PHLX Semiconductor Index fell 21%. At that time, the market was supported by retail investors buying the dip and short sellers closing their positions. Hedge funds focused on TMT strategies had previously experienced losses exceeding 10%.
Current market conditions lack these supports. Retail investor activity has decreased, corporate buyback programs have stalled, and short interest remains low, reducing the likelihood of a short squeeze. Rising interest rates have also increased debt costs for data centers.
The sell-off has significantly impacted South Korean memory chip stocks, contributing to declines in the KOSPI index. JPMorgan notes that hedge fund engagement in the AI sector has diminished, increasing the sensitivity of these stocks to retail options and margin activity.
Market focus is shifting from capital expenditure on AI to the actual monetization of these investments. JPMorgan advises investors to monitor financing indicators, including credit default swap spreads for companies like Oracle and SoftBank, to assess resilience.
