What caused the big market volatility this week? Goldman Sachs partner: It's not Powell, but AI rebalancing.

This week, the global stock market has experienced violent fluctuations, which are not caused by macroeconomic concerns triggered by the change in the chairman of the Federal Reserve, but by the structural rebalancing within the AI investment frenzy the cyclical nature of the storage cycle, the extreme crowded positioning of hedge funds, and the market's changing perception of winners and losers in the AI industry chain are all contributing factors to this turmoil. Mark Wilson, a partner in sales and trading at Goldman Sachs, stated in a recent report that despite the emergence of macroeconomic signals such as sharp declines in breakeven inflation rates and rising real interest rates, and a strong breakout in the US dollar since Kevin Warsh became the new Federal Reserve chairman, he does not believe that these are the fundamental reasons for the stock market volatility this week. He maintains his consistent judgment: "The stock market is still driving the macro, not the other way around." The market turmoil this week is evidenced by South Korea's Kospi index triggering circuit breakers twice, Microsoft hitting a 52-week low, and Amazon falling below the 200-day moving average. The "Big Seven Tech" (Mag7) collectively declined by over 5% since the beginning of the year, with Apple and Dell each dropping over 5% in a single day. Meanwhile, Micron recorded a record gross margin the differentiation between beneficiaries and pressure points in the AI supply chain is now clearer than ever in the market. Wilson's core conclusion is that this volatility is not a signal of the end of the AI investment cycle "we are still in the midst of a historic investment frenzy" but rather a reassessment of the net winners and losers in this frenzy. South Korea at the epicenter: Leveraged structure amplifies the vulnerability of AI themes The South Korean market has become the epicenter of this week's global AI trading volatility. While the Kospi index had risen by about 100% since the beginning of the year, it triggered circuit breakers twice this week. According to Wilson's statistics, half of all circuit breaker days in South Korea since the turn of the century occurred in 2026, with 20% of them happening just this week. This extreme volatility has structural roots: about 60% of the Kospi's weight is concentrated in two stocks, with hundreds of billions of dollars in leveraged ETF replication products behind them, amplifying any significant swing in either direction. More importantly, the market realized that Samsung and SK Hynix's latest expansion plans indicate that the historically high profit margins in the storage industry will face pressure from increased supply. Wilson points out that while this is a net positive effect for the overall supply chain, it creates direct downward pressure for storage stocks, which are currently heavily congested in terms of positions. Winners and losers: Structural repricing of the AI industry chain The divergence logic in the market this week is particularly clear: companies investing heavily or facing cost pressures are being punished, while beneficiaries in the supply chain continue to be favored. Microsoft not only hit a 52-week low, but its stock price has fallen below its high point in 2021, indicating zero returns over the past five years; Amazon fell below the 200-day moving average. The Mag7 as a whole has fallen by over 5% since the beginning of the year. On the other hand, end-user manufacturers such as Apple and Dell have been forced to announce widespread price increases due to rising storage prices, passing on the costs associated with Micron's record gross margin to consumers. Wilson summarizes this logic as: "Companies investing in AI (with uncertain returns) and those facing profit margin compression are being punished; while companies benefiting from capital expenditure and price increases continue to appreciate." Storage cycle: Reversal risks behind record profit margins Wilson believes that Micron's evolution in profit margins has the potential to become a classic case study in business schools, but the cyclic risks behind it should not be underestimated. After the global financial crisis, the storage industry accelerated consolidation, with profit margins systematically rising during each downturn cycle, a development supported by evidence and strategies, making it a clear and investable logic. However, against the backdrop of Micron's historically high gross margin and SK Hynix's expansion plans, Wilson warns investors that this industry is fundamentally cyclical. With Samsung and SK Hynix's new round of capacity expansion gradually coming online, the current supply bottleneck will be relieved a positive signal for the overall supply chain, but it signifies tangible valuation pressure for storage stocks that have already benefited significantly and are heavily crowded. Hedge funds: High leverage combined with extreme crowdedness accumulates risks to a critical point The latest position analysis from Goldman Sachs Global Markets Prime Brokerage strategy team reveals another layer of deep-seated risks behind this week's market volatility. Data shows multiple extreme signals appearing simultaneously: hedge funds' total leverage ratio has reached an all-time high; hedge funds have significantly net sold US assets since the beginning of the year, instead increasing their positions in Asia (mainly concentrated in Japan and South Korea); in AI theme holdings, the net long positions in storage stocks are growing at twice the pace of semiconductor or utility sectors. In terms of performance structure, fundamental, systematic, and multi-strategy hedge funds have generally achieved returns between 14% and 18% since the beginning of the year, with impressive results, but with significant differentiation. The excess returns of systematic and multi-strategy funds mainly come from non-AI targets, while the returns of fundamental funds almost entirely depend on AI themes, with non-AI holdings contributing almost no alpha. The performance correlation between US and Asian AI positions has reached the historical 99th percentile, at an extreme level; Europe is almost absent from this rally. Wilson emphasizes that crowded positions alone are not sufficient reason for a reversal in short selling, but once the fundamentals change, extremely crowded positions will amplify downward risks the drastic fluctuations in the South Korean market this week are a direct reflection of this mechanism playing out. The AI frenzy continues, reshaping the landscape quietly Wilson clearly refutes interpreting this week's volatility as a turning point in the AI investment cycle. He believes that the increased volatility currently sending a potentially profound signal to the market: the landscape of net winners and losers in the AI investment frenzy is undergoing a deep transformation. He also points out that the political pressure on the AI narrative is rising. As the US midterm elections approach, the impact of AI on employment will receive more attention. Data shows that the proportion of the US tech industry in employment has been declining trend for over five years, attributed to the accelerating loss of AI positions, and the entire industry has yet to form a convincing positive narrative to respond. For investors, the core message conveyed by the current turmoil is: "AI beneficiaries" cannot be generalized, and there is a need to more finely distinguish the structural differences between capital expenditure, profit margin pressure, and supply chain beneficiaries this will be a key variable in investment decisions in the second half of the year. This article is reprinted from "Wall Street View" by GMTEight editor: Chen Siyu.