Investment Summary
My conclusion is simple: the true terminator of the technology market is not the Fed raising rates by an additional 25bp, but rather the internal competition within industries and the disproof of EPS; before these two signals appear, the plunge on June 5 resembles more of a "reversing to pick someone up" rather than "car crash with casualties." This statement is the main line of this report and reflects my position principle in dealing with the current interest rate hike panic. The U.S. added 172,000 non-farm jobs in May, significantly exceeding the market expectation of 88,000, driving the market to revise the probability of interest hikes this year to 63%, with nearly 100% before January next year. The Philadelphia Semiconductor Index fell more than 10% that day, and the Nasdaq dropped 4.18%. But I will not abandon the tech sector just because of a single macro data day, because historically, what really determines whether tech stocks can withstand interest rate disturbances is not the interest rates themselves, but whether EPS is still being revised upward.[1] [2]
My judgment is that current AI trading has transitioned from a "broad-based rally narrative" into a "narrow focus validation." This is not a stage where all high-beta tech stocks can continue to be bought indiscriminately, but it is also not the stage where the main AI line has ended. The core positions should be allocated to leading assets with high order visibility, stable gross margins, strong cash flow quality, and where EPS can still be revised upward by analysts; for quantum, aerospace, and certain small chip story stocks lacking profit closure, one should use rebounds to reduce positions or hedge portfolio volatility with option structures.
I. Fact Judgment: Interest Rate Hike Panic is a Trigger, Not the Main Cause
The market response on June 5 was very intense, but the triggering chain was not complex. According to official data from the BLS, U.S. non-farm employment increased by 172,000 in May, with the unemployment rate remaining at 4.3%, and employment in March and April revised upward by a total of 93,000; the robust employment data has strengthened market concerns about inflation stickiness and further interest rate hikes.[3] Reuters and market reports indicated that on the same day, the Nasdaq dropped 4.18%, and the Philadelphia Semiconductor Index (SOX) fell more than 10% in a single day, as investors quickly repriced risk assets into the "higher rates, longer duration of higher rates" scenario.[1] [2]
Variable | Changes around June 5 | My Interpretation |
U.S. May Non-farm Employment | 172,000, significantly above the expected 88,000 | Short-term repricing on the interest rate front, but employment structure still needs to be analyzed based on wages and inflation transmission |
Unemployment Rate | 4.3%, unchanged from previous value | Labor market has not deteriorated to a recession, instead suppressing rate cut expectations |
Probability of Rate Hike This Year | Market revised to 63% | Creates valuation pressure on duration assets, first impacting high-valued tech stocks |
SOX Index | Single-day drop exceeded 10% | Semiconductors are at the core of crowded trades, first impacted by liquidity shocks |
Nasdaq | Single-day drop of 4.18% | Panic is evident at the index level, but does not equate to AI EPS being disproven |
I define this drop asa concentration release of rate shocks combined with crowded trades. It will eliminate parts of valuations that expanded too quickly, and also force funds to withdraw from weak logic, high elasticity, and low profit certainty assets; but if AI infrastructure orders, cloud vendors' capital expenditures, and demand for GPUs/light modules/PCBs do not show substantial downward revision, the main tech line will not have ended due to this drop.
II. Historical Review: The Lesson from 1999 is Not to "Chase the Bubble," but to "Watch EPS"
The internet bubble period of 1999 is often cited to warn today's tech stocks, but I believe this analogy cannot look solely at valuation, it must also consider earnings. At that time, the Fed entered a continuous rate hike cycle, the Dow was mainly flat, while the Nasdaq continued to rise sharply until peaking in March 2000. Research cited by Moomoo noted that in 1999, Nasdaq 100 EPS grew by about 60%, while Dow EPS growth lagged significantly; by Q1 2026, Nasdaq 100 EPS growth is about 36%, while Dow is around 4%, revealing a divergence in earnings structure again.[2]
Research from Nasdaq Investment Intelligence on the past 30 years of interest rate upswings also supports the same conclusion. During 13 interest rate increase phases lasting at least 6 months from 1985 to 2021, the Nasdaq-100's average cumulative return was 22.6%, higher than S&P 500 at 11.3% and Dow at 12.7%; in the period from October 1998 to January 2000, when the 10-year treasury yield rose by about 2.2 percentage points, the Nasdaq-100 cumulatively rose by 165.3%, clearly exceeding the S&P 500 and Dow during the same time period.[4]
This history inspires me not that "high valuations can rise forever," but ratherinterest rates are not a sufficient condition for selling tech stocks. The real danger comes from two things: first, stock prices depend solely on PE expansion, and EPS does not keep up; second, the competitive landscape begins to worsen, with leading gross margins and cash flow turning downward first. If these two things do not occur, rising interest rates are more about adjusting pace rather than directly declaring the main line dead.
III. Valuation Framework: Short-term Looks at Prosperity, Long-term Looks at Margin of Safety
I do not agree with mechanically judging whether AI leaders are in a bubble based on a single PE or PB fractile. In the short-term one-year dimension, stock prices are primarily determined by revenue growth rate, change in ROE, and direction of EPS revisions; in a three to five-year dimension, PB, free cash flow yield, and return on capital expenditure will truly determine long-term returns. Research from Pacer ETFs shows that at the end of 1999, the Nasdaq-100 was about 73 times earnings, with a free cash flow yield of only 0.76%; whereas by the end of 2023, it is about 31 times earnings, with a free cash flow yield of 2.68%. The current scale of leading companies' sales, profits, and free cash flows is also incomparable to those companies from the 1999 internet bubble.[5]
Valuation Issues | Misconceptions | My Judging Method |
Is High PB Necessarily a Bubble? | As long as PB is high, it is a bubble | Look at ROE, technical barriers, return on capital expenditures, and EPS upward revision direction |
Does High PE Mean Must Sell? | High PE fractiles mean to reduce holdings | If EPS continues to be revised upward, high PE may be digested by profits; if EPS stagnates, high PE becomes dangerous |
Are AI Leaders Too Crowded? | Crowding equals peak | Crowding is more like a narrowing signal, with funds flowing back from weak assets to strong assets |
How to Handle Rising Interest Rates? | Sell all tech | Reduce leverage, retain strong, remove weak, and keep the strongest evidence of EPS |
Therefore, I would categorize AI core assets into two types. The first type includes "toll booth assets" that have real orders, real gross margins, and real cash flows, including AI server chains, advanced packaging, optical modules, PCBs, and core suppliers for cloud capital expenditures. The second type includes high-beta assets that only tell long-term stories with unclear profit realization paths, such as certain quantum, aerospace, conceptual chip, and software small caps lacking order validation. The former should be observed for accumulation windows during significant downturns, while the latter should reduce risk exposure during rebounds.
IV. Crowding: This is a Narrowing, Not the First Peak
Currently, capital is clustering around AI core assets, siphoning funds away from dividends, small cap, and non-mainstream assets, which must be acknowledged. However, crowding does not equal a peak. A genuine peak usually needs to satisfy three conditions: first, there is marginal slowdown in industry capital expenditures; second, the competitive landscape for leading companies begins to deteriorate, with signs of price wars or declines in gross margins emerging; third, the trend of EPS revisions halts, even reversing to downward revisions. So far, this adjustment is more aligned with "left-side phase high cuts and low" and "mainline narrowing," rather than confirming AI's first mid-term peak.[2]
I view the late June to July earnings season as a genuine verification window. The A-share mid-report forecasts, guidance for U.S. tech stocks' second-quarter reports, capital expenditure metrics from cloud companies, and the visibility of semiconductor supply chain orders will collectively determine whether this adjustment is a healthy turnover or if the mainline starts entering profitability disproof.
V. My Investment Interpretation: Do Not Abandon the Tech Mainline, But Must Remove Weaknesses and Retain Strengths
My operational principle is:Core positions are to be retained for leaders with EPS evidence, and risk budgets should no longer be wasted on high-beta varieties that are purely storytelling. In the AI infrastructure chain, I prefer to hold companies with high order visibility, stable gross margins, good cash flow, and those positioned in clients' rigid capital expenditure segments. Optical modules, PCBs, AI servers, advanced packaging, cloud infrastructure, and software platforms with pricing power are directions in which I am willing to withstand volatility.
Asset Class | Current Action | Core Reason | Risk Control |
AI Infrastructure Leaders | Retain core positions, observe in batches during rapid drops | EPS and orders still have evidence, short-term rate shocks do not change industry trends | Do not chase highs, wait for key nodes to land |
Optical Modules/PCBs/Advanced Packaging | Maintain core focus | AI server capital expenditure transmits most directly to the hardware chain | If gross margins or orders decline, immediately reduce weighting |
Cloud and Platform Software | Choose those with strong ecosystem moats | AI application entry points and enterprise refresh cycles still have long-term value | Prevent excessive pre-emptive valuations |
Quantum/Aerospace/Some Concept Chips | Reduce holdings during rebounds | Strong narrative, weak EPS, easiest to be devalued during rate hikes | May use options to hedge high-beta exposure |
Dividend and Cash-like Assets | As portfolio stabilizers | Hedge uncertainties from macro nodes | Do not treat defensive positions as long-term mainlines |
This is not blind optimism. On the contrary, I believe the next month requires stricter monitoring of four nodes: June 10 CPI, if core inflation unexpectedly transmits due to oil prices, leverage needs to be reduced; oil prices and U.S.-Iran situation; if oil prices remain high for the long term, it will increase inflation stickiness; mid-June meetings of the European Central Bank and the Bank of Japan will affect global liquidity; June 18 remarks from Waller, if expressed in very hawkish terms, will reshape interest rate path pricing. Macro nodes determine the rhythm, and EPS determines direction.
VI. Conclusion: Reversing to Pick Someone Up, but Only Pick Those with Performance
I will not abandon the tech mainline because of the single-day plunge on June 5, but I will upgrade the portfolio from "buying AI stories" to "buying AI income statements." If a company can prove orders, gross margins, cash flow, and continuous EPS fulfillment, its decline during interest rate shocks seems more like an opportunity; if a company only has a concept and no profit path, it should instead be removed during rebounds.
The final conclusion remains the same as the opening statement:The terminators of the technology market are industrial competition and EPS disproval, not the Fed raising rates by 25bp. The current adjustment is a "reversing to pick someone up," not "car crash with casualties"; hold onto positions with performance and wait for the four key nodes to land.
This report was compiled by a special analyst. The views expressed in this report represent the author's personal position and do not represent the views of the BIT platform. This material is for reference only and does not constitute investment advice.
References
1. Reuters, Nasdaq, S&P futures slip as semiconductors drag, payrolls in focus, June 5, 2026. https://www.reuters.com/business/nasdaq-sp-futures-slip-semiconductors-drag-payrolls-focus-2026-06-05/
2. Moomoo / Wallstreetcn, Persistent headwinds from crowding, valuations, and interest rate hike expectations: Is tech still worth holding? https://www.moomoo.com/news/post/71180799/persistent-headwinds-from-crowding-valuations-and-interest-rate-hike-expectations
3. U.S. Bureau of Labor Statistics, The Employment Situation — May 2026. https://www.bls.gov/news.release/empsit.htm
4. Nasdaq Investment Intelligence, What to and not to fear when the Fed tightens. https://indexes.nasdaqomx.com/docs/Interest%20rate%20sensitivity%20of%20the%20Nasdaq-100.pdf
5. Pacer ETFs, The NASDAQ-100: Is this time really different? https://www.paceretfs.com/resources/resource-library/the-nasdaq-100-is-this-time-really-different
6. Northwestern Mutual, The Fed Is Raising Rates: Here's How Markets Have Performed in the Past. https://www.northwesternmutual.com/life-and-money/the-fed-is-raising-rates-heres-how-markets-have-performed-in-the-past-0/
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