Written by: Tide Research

Apple has reportedly completed regulatory filing in China for its AI collaboration with Alibaba, with its stock price rising 4.01% on the day to reach a historic high, while Alibaba also rose 4.8%. The PPI for June fell 0.3% month-on-month, marking the largest drop in six years and was the second day's inflation data released this week below expectations, combined with financial reports from Morgan Stanley and BlackRock both exceeding expectations, the three major stock indexes slightly closed up. However, the storage chip sector became the biggest loser of the day, with SanDisk dropping 8.12%, SK Hynix falling 9%, Western Digital declining over 8.7%, and Micron dropping 8%, indicating a clear divergence in market pricing for the storage supercycle.

Market Performance

The S&P 500 rose 0.38%, closing at 7572.40 points. The Dow Jones Industrial Average rose 0.29%, closing at 52658.64 points. The Nasdaq rose 0.62%, closing at 26269.23 points.

Apple led the Dow with a rise of 4.01% to a historic high, Google rose 3.17%, Meta rose 3.07%, Amazon rose 3.02%, Microsoft rose 2.78%, and Nvidia, after temporarily dropping nearly 3% during the day, closed up 0.33%. Tesla was the only one among the top seven to decline, dropping 0.43%. Morgan Stanley's stock price reached a new high, and BlackRock rose 6.6%.

The storage chip stocks collectively fell sharply, with SanDisk down 8.12%, SK Hynix’s US ADR down 9%, Western Digital falling over 8.7%, Micron down 8%, Seagate down 5.7%, and the semiconductor ETF down 1.59%.

The communications services sector saw the largest increase at 2.78%, while the utilities sector dropped nearly 1% leading the decline, the energy sector fell 0.77%, the real estate sector slightly rose 0.09%, and the banking and regional bank ETFs increased by up to 1.18%. The global airline industry ETF rose 1.30%, the technology sector ETF fell 1.08%, and the global technology stock index ETF dropped 0.82%.

Alibaba rose 4.8%. PayPal surged 17.2% due to acquisition rumors, and Aehr Test Systems rose 22%. SpaceX has declined for the fourth consecutive trading day, dropping to $133 at one point, falling below the issuance price of $135.

WTI crude oil rose 0.33%, priced at $79.60 per barrel. Brent crude oil rose 0.26%, priced at $84.95 per barrel, marking three consecutive days of increase and reaching a one-month high. COMEX gold fell 0.42%, priced at $4044 per ounce. COMEX silver fell 2.83%, priced at $57.11 per ounce. Bitcoin surged over $65,000 during the day, rising nearly 2% from the daily low.

The 10-year US Treasury yield is at 4.55%, dropping about 4 basis points during the day. The 2-year US Treasury yield is at 4.13%, dropping about 6 basis points during the day, with a drop of about 10 basis points from the day’s high. The US dollar index turned downward, hitting a near four-week low.

Macroeconomic Outlook

The PPI for June decreased by 0.3% month-on-month, marking the largest single-month decline in six years, while the year-on-year increase of 5.5% was below the expected 6.2%. Core PPI increased by 0.2% month-on-month, with the year-on-year increase of 4.7% also below the expected 5.1%. This marks the second consecutive day of soft inflation data following CPI, and the probability of a 25 basis point rate hike by the Federal Reserve this month has dropped to 10.2%, down from 31.0% a week earlier.

Wash maintained a cautious stance the day after the congressional hearing, acknowledging that the CPI and PPI data had improved but emphasizing that a single inflation indicator cannot perfectly reflect the true situation, stating that the logic of AI driving up chip prices and external conflicts raising energy prices is fundamentally different. He also mentioned that Trump had never asked him to make any improper decisions, and Trump reiterated his hopes for interest rate cuts that day.

New York Fed President Williams believes that the policy stance is now in a favorable position and that inflation is likely at its peak; Fed Governor Cook was relatively hawkish, stating that if inflation cannot continue to decrease, she is prepared to take action.

Morgan Stanley's revenues and earnings reached historical records this quarter, with the core driver being the stock trading desk, which saw nearly a 70% year-on-year surge in income. This report aligns with similar logic from Goldman Sachs and JPMorgan, where the drastic market fluctuations in the second quarter contributed to the historic performance of trading businesses.

The sharp decline in the storage chip sector sharply contrasts with the previous days' surge. Just two days ago, SK Hynix’s US ADR saw a day rise of 27%, and now it has fallen back 9%, indicating that market confidence in the storage supercycle seems to be wavering.

Some views suggest that cloud service providers and chip manufacturers are discussing using financial derivatives to hedge against the risk of falling storage prices, which stands in subtle contrast to the optimistic sentiment conveyed by ASML's financial report. ASML's performance in Q2 exceeded expectations across the board and raised its full-year guidance, with management believing that the "peak theory" for memory was robustly refuted, but storage stocks on the day did not seem to reflect this sentiment positively.

The completion of regulatory filing has alleviated previous market concerns about whether the domestic AI capabilities could be realized. Alibaba's technological capabilities have been validated by top clients like Apple, and the narrative of "Apple Supply Chain + AI" is becoming one of the new pricing logic for tech giants. This signal is equally important for other Apple Supply Chain suppliers and domestic AI application companies, as Apple's approval process is now streamlined, signaling that subsequent AI functions for mobile terminals approved in the same batch, such as Doubao and Baidu, will have remove uncertainty in the commercialization path of regulatory approval, thus removing the previously concerning variable of "approval bottleneck" from the pricing model.

SpaceX’s continuous four-day decline and first drop below the issuance price reflect the market's growing concerns over the costs and returns of AI infrastructure, which are spreading from chip stocks to the broader concept of AI infrastructure stocks.

Tide Perspective

The day's market performance reveals an interesting divergence: the cooling inflation data should have been a reason for a broad rise, but capital is clearly making selections, with targets like Apple and Alibaba that have concrete performance validation being favored, while storage chips, driven by expectations earlier, are facing profit-taking.

The market is shifting from the "storytelling" phase to the "evidence" phase; those who can present real performance to support their claims will be able to navigate through the noise of inflation and interest rate hike expectations.

The consecutive days of volatility in storage chip stocks indicate that, as part of the AI narrative, the pricing on the hardware side is far more fragile than on the financial service side. The statements from Wash and Cook convey a subtle divergence, with no true consensus within the Federal Reserve regarding the timing of interest rate cuts. The financial report from Taiwan Semiconductor Manufacturing Company is about to be released, which will be the next concrete node to verify the main line of storage and chips. If TSMC provides a strong revenue guidance related to AI, the current pessimistic pricing of storage stocks is likely to be falsified; however, if the guidance includes even slightly conservative wording, the market may consider this drop as a preemptive response rather than an overreaction.