Written by:潮向 Research

Taiwan Semiconductor Manufacturing Company (TSMC) released a quarterly report that exceeded expectations, with net profit soaring 77.4% year-on-year, and also raised its full-year revenue and capital expenditure guidance, but the stock price fell instead, as "buying the expectation and selling the fact" played out once again. The Philadelphia Semiconductor Index dropped 4.29% in one day, having accumulated a pullback of over 22% since its mid-June high, officially entering a technical bear market. The Nasdaq 100 briefly fell by 2%. Google's stock dropped over 4% due to delays in the Gemini flagship model, while Chinese concept stocks rose against the trend, with the Golden Dragon Index up 1.79%. Gold fell below the $4000 mark.

Market Performance

The S&P 500 fell 0.51%, closing at 7533.77 points. The Dow Jones dropped 0.20%, closing at 52552.97 points. The Nasdaq fell 1.47%, closing at 25881.946 points. The Nasdaq 100 declined 1.62%, closing at 29025.77 points, having briefly dropped 2% intraday. The Russell 2000 fell 0.06%, closing at 2974.567 points. The VIX rose 6.64%, reaching 16.71.

The Seven Giants Index fell 1.31%. Apple rose 1.76%, Microsoft rose 1.38%, Tesla fell 0.86%, Amazon fell 1.99%, Nvidia fell 2.40%, Meta fell 2.46%, and Google's A shares fell 4.44%, having briefly dropped 5% due to rumors of delays in the Gemini flagship model release.

The Philadelphia Semiconductor Index dropped 4.29%, closing at 11867.50 points, having accumulated a pullback of over 22% since its mid-June high, officially entering a technical bear market. Marvell and Credo led the decline with drops of over 8%, SanDisk plummeted over 12%, TSMC ADR fell 2.25%, and AMD dropped 5.33%. The semiconductor ETF fell 3.70%, while the technology sector ETF fell 2.24%. The regional bank ETF rose 2.82%, with consumer staples and banking ETFs both rising over 2.44%.

SpaceX fell over 3% again below the issue price, and after-hours trading plunged over 4% after the cancellation of a Starship test flight. Netflix plunged almost 9% after hours, with its third-quarter guidance falling below expectations.

The Nasdaq Golden Dragon China Index rose 1.79%, closing at 6396.75 points. Xiaomi rose 5.4%, BYD rose 3.3%, Meituan rose 3.2%, Alibaba fell 0.1%, and Tencent fell 0.4%.

WTI crude oil fell 0.82%, closing at $78.95 per barrel. Brent crude oil declined 0.85%, closing at $84.23 per barrel. Spot gold dropped 2.08%, closing at $3975.93 per ounce, falling below the $4000 threshold. Spot silver fell 3.97%, closing at $55.5054 per ounce. Bitcoin dropped back to around $64,200. The yield on the 10-year U.S. Treasury rose by 1.81 basis points, closing at 4.5654%. The dollar index rose 0.31%, hovering around 100.76.

Macro and Outlook

TSMC's financial report data itself has no shortcomings; with net profit soaring and capital expenditures increased, it theoretically proves that demand for AI hardware remains strong, but the market did not interpret it this way.

A gross profit margin of 67.7% only slightly exceeded the upper limit of guidance, and the increase in full-year revenue guidance can only be considered as "slightly exceeding expectations." This "just meeting the standard" report card brought no surprises, making it difficult to elicit a positive response at the current valuation level. Institutions hold a more optimistic view, believing that the short-term fluctuations in gross margin are merely one-off factors, and AI demand is penetrating from pure chips to CPUs and HBM, thus the long-term logic has not been broken.

Goldman Sachs characterized this sell-off as systemic pressure across the entire AI sector, with light connectivity, AI semiconductors, and data centers experiencing declines of 5% to 12% over the past two trading days. JPMorgan tracked hedge fund positions and found that these funds have been continuously reducing their AI exposure and leveraged ETF positions over the past month. The peak of forced liquidations may have passed. Some believe the current declines have entered a historical rebound zone, but whether it can stop depends on whether cloud computing giants are willing to continue raising AI capital expenditures.

Regulatory actions in South Korea have added fuel to the fire. Local regulators suddenly tightened rules on single-stock leveraged ETFs, significantly raising margin thresholds, leading to a sell-off in the memory chip sector, which caused the semiconductor industry index to drop 9% during the day. On the same day, the Bank of Korea raised interest rates to 2.75% for the first time in three and a half years, causing the KOSPI index to close down nearly 7% that day, triggering a trading halt for the eighth time this year.

The U.S. economic data released that day did not form a unified direction. The number of initial jobless claims fell to 208,000, its lowest since early May. Retail sales increased by only 0.2% month-on-month, mainly dragged down by gas station sales due to oil prices; excluding this, core retail sales rose 0.7% month-on-month. The Philadelphia Fed manufacturing index jumped to 41.4, while the market had only expected around 12.5; this reading is higher than any month since the end of 2021. The real estate sector lagged behind, with builder confidence and existing home sales data both falling short of expectations. The market currently believes the probability of a rate hike in July is only around 10%, while September's probability is about 48%, essentially a fifty-fifty situation.

On the geopolitical front, U.S. airstrikes on Iran have continued for the fifth consecutive night, and the number of ships passing through the Strait of Hormuz has dropped to about 10% of pre-conflict levels, with only 13 merchant ships passing on the 16th. Trump praised the release of Iranians, which the market interpreted as both sides still leaving room for negotiation, causing oil prices not to continue rising on the airstrike news; WTI traded down from around $81.00 that night.

Gold and Bitcoin both faced pressure that day, with the backdrop being the dollar's resurgence. The dollar had struggled to rally in recent days due to soft CPI and PPI inflation data but, helped by the resilience of retail and employment data, combined with the safe-haven buying brought on by geopolitical tensions, lifted the dollar index.

潮向 Perspective

TSMC's financial report reveals a phenomenon worth cautioning; even with a 77% growth in net profit and raised capital expenditures, the market still opted to sell off. This indicates that the valuation threshold for AI hardware stocks has been raised sufficiently high; "excellence" is no longer a point of addition, and only "surpassing everyone's expectations" deserves to continue rising. Once this pricing logic is established, subsequent financial reports that fall slightly short of expectations may trigger the same sell-off.

The reasons behind this round of sell-off are complex, involving both a reevaluation of the sustainability of AI capital expenditures and pure position issues, as well as a resonance between tightened regulatory oversight of leveraged ETFs in South Korea and hedge funds reducing their positions. What truly needs to be assessed is whether JPMorgan's assertion that "deleveraging is nearing its end" is accurate. If there is no new forced liquidation pressure in the next week or two, the sell-off will naturally stabilize; if cloud computing firms continue to raise capital expenditure guidance in the next round of financial reports, market sentiments may also have a chance to recover.

The drop of gold below $4000 and the simultaneous retreat of Bitcoin signal that safe-haven assets also face pressure when the dollar strengthens, indicating that this round of adjustment has not evolved into a full-scale risk-off situation. Capital has merely exited from high-valuation AI hardware stocks, rather than pulling out from risk assets altogether. The rise of Chinese concept stocks against the trend corroborates this point, as capital searches for targets that have not been overdrawn by the AI narrative. The next critical juncture will be the financial results of the super-large cloud providers, as their ability to verify the sustainability of capital expenditures will determine whether this round of chip stock corrections is a short-term flush or the start of a trend reversal.