Samsung's sharp drop disturbs storage supply chain: is it a painful correction for US tech stocks, or a "healthy rotation" in the eyes of HSBC?

Notice that in its US stock strategy report at the end of June, HSBC Bank stated that the recent pullback in US tech stocks not only did not disrupt the broader stock market rebound but actually improved market breadth. At the same time, profit forecast revisions remain strong, and valuations have become more attractive. As investors rotate funds from the tech sector to defensive sectors including healthcare, utilities, and consumer staples, the S&P 500 index fell by 1% in June. The institution pointed out that this adjustment marks the first substantial improvement in market breadth in four months, with the equal-weighted S&P 500 index outperforming the market-cap weighted index, and about two-thirds of stocks performing better than the market benchmark. Although participation has expanded, HSBC Bank stated that the stock market rebound remains concentrated, with over 87% of the S&P 500 index's gains this year being driven by semiconductors and tech hardware. Capital goods related to artificial intelligence (AI) were also major contributors. Software was the weakest-performing tech subsector in June, falling by about 15%, while semiconductor and hardware stocks showed relative stability. The "Big Seven" tech stocks averaged a decline of about 9%, which HSBC Bank believes is a rotation of funds from high momentum growth stocks rather than a deterioration in fundamentals. The bank stated that earnings continue to support this sector. Information technology sector and the "Big Seven" tech stocks have seen a 25% increase in expected earnings growth in the next 12 months, with valuations falling to around 23 times expected earnings. HSBC Bank also mentioned that Micron Technology, Inc.'s recent performance further solidified the recovery of the AI semiconductor industry, and there is little evidence to suggest that generative AI will pose a substantial threat to software companies in the short term. The institution predicts that the drop in oil prices will ease overall inflation, but it still expects the Federal Reserve to maintain interest rates unchanged in 2026 and 2027, even though the market has already priced in expectations of further policy tightening. As doubts arise about the peak of storage, the rotation of US semiconductor stocks has arrived On July 7th, Samsung Electronics announced its preliminary results for the second quarter, which shocked the industry: its operating profit surged to an astonishing 89.4 trillion Korean won (about 584 billion US dollars), more than 19 times higher than the previous year. This number not only broke the record for South Korean companies but also surpassed NVIDIA Corporation and Apple Inc. in quarterly profits. However, the secondary market dealt a "harsh blow" - Samsung's stock price plummeted nearly 8% in Tuesday's trading and triggered a major retreat in the South Korean composite index and the entire Asia-Pacific semiconductor sector. Analysts pointed out that after a strong rally, investors had high profit expectations for Samsung. When the actual performance exceeded expectations but did not bring "greater surprises," profit-taking ensued. This logic is similar to the pattern seen after Micron Technology, Inc. announced its results - forming a market inertia of "selling even when the performance is good." This strange scene of "falling sharply when all the good news is out" quickly became the focus of debate on Wall Street. Pessimistic analysts led by Morgan Stanley pointed out that Samsung's high and then fall exposed the "pain of perfect pricing" in the current AI race. The "profit taking" that Samsung Electronics experienced this time is essentially an extreme interpretation of the capital market's logic of "buying expectations, selling facts." In the past year of the AI super cycle, Samsung's stock price has risen significantly - up over 155% year-to-date, nearly five times higher than at the beginning of 2025. Such a huge increase means that the market's pricing of performance is already very ample, with very little room for error. This panic is rapidly spreading to the US stock market through the global supply chain. Companies in the storage camp, such as Micron Technology, Inc., AMD, and other high momentum semiconductor stocks, will inevitably share the "collateral damage" of a temporary valuation correction. For US tech stocks, the ripple effect caused by Samsung's actions is more like a "late-stage benign cleansing." It clearly sends a signal to the market: the phase of blindly buying into the "grand narrative of AI" is over, and the US semiconductor sector is transitioning from "emotion-driven" to "picky about free cash flow generation capability." The short-term painful adjustment may pave the way for another highly attractive "golden opportunity" for solid US AI leading stocks.