Source: BIT Securities

Introduction: On Monday (October 12), U.S. stocks were trading normally while the bond market was closed for Columbus Day. The AI hardware sector adjusted significantly at low levels. The Philadelphia Semiconductor Index fell 2.67%, marking a four-day consecutive decline, pushing last Friday's divergent market behavior into a clearer direction. On the same day, a warning about capital from Broadcom's CEO emerged in Singapore, while three days earlier, a new architectural development from Changxin Storage was reported in Shanghai. One focuses on where the money on the demand side comes from, while the other examines whether the supply side's landscape will change. In the early trading session on Tuesday, the KOSPI and Nikkei indices fell successively, expanding this round of adjustments to the Asia-Pacific region. This article breaks down these two clues in transmission order.

1. The Path of One Day's Sell-off

First, let's look at the single-day structure. The SOXX ETF fell 2.60% on Monday, with declines of 1.12%, 3.35%, and 0.69% in the previous three trading days, erasing all rebound gains from early October with four consecutive declines. Among the 30 constituent stocks of the Philadelphia Semiconductor Index, 28 fell, ending at 12,236.79 points.

The order of declines itself conveys information. Optical communication and storage components led the drop, with Ciena down 9.95%, Lumentum 9.78%, Coherent 7.87%, Corning 6.02%, SanDisk 5.97%, Micron 3.88%, ARM 4.15%, Intel 3.20%, AMD 2.28%, while NVIDIA fell 1.29% and Broadcom 1.88%. Meta, however, rose 3.39% against the trend. A verifiable interpretation is that panic is transmitted along the AI chain, decreasing from segments most reliant on capital expenditures toward core segments, consistent with the pattern following the exposure of OpenAI's revenue expectations on October 8. If subsequent financial reports show that optical communication orders remain strong, this interpretation needs to be adjusted, as it would indicate that the market is pricing financing conditions rather than demand contraction.

2. Why Broadcom's CEO's Statement is Significant

On Monday at the DBS Asian Future Summit in Singapore, Broadcom's CEO Hock Tan stated that as the entire industry competes to build infrastructure, financing could become a greater obstacle to AI expansion, potentially more impactful than shortages of semiconductors, storage chips, or electricity. According to CNBC records, his exact words were "[I believe] the biggest constraint is capital." He also noted that shortages of wafers and memory chips are easing and that there is no contraction on the demand side; as reported by Yahoo Finance, Broadcom still believes that demand for computing infrastructure will continue to exceed supply. Intel's CEO Pat Gelsinger expressed a similar viewpoint on the same platform.

The significance of this statement lies in its reframing of the issue from a chip shortage to one of a capital shortage. Additionally, a noteworthy detail reported by Reuters, citing Anthropic's IPO documents, is that Broadcom has agreed to provide Anthropic with loans of up to $42 billion, an amount roughly equivalent to one-third of Anthropic's $125.2 billion chip procurement commitment. The fact that chip companies are beginning to provide financing directly to customers underscores the entry of financing issues into the pricing center.

3. What Changxin Is Redefining

On October 10, Changxin Technology President Cao Kanyu announced at the 4th Integrated Circuit and Chiplet Conference in Shanghai that progress has been made in the development of the 4F² DRAM architecture, with plans to launch server DDR5 RDIMM products that integrate 4F² architecture and hybrid bonding technology by the end of the year. The 4F² architecture compresses the storage cell area to about two-thirds of the traditional 6F² structure; according to reports, some comments suggest its roadmap is about two years ahead of Samsung's similar architecture. It is important to emphasize that, according to TrendForce, this is still a development progress and product goal, and not a mature product aimed at customers.

The impact of Changxin's news should be interpreted against the backdrop of strong storage market conditions. Demand remains very robust; TrendForce projects that conventional DRAM contract prices may increase by 10% to 15% quarter-over-quarter in the fourth quarter, and NAND flash prices may rise by 15% to 20%. Micron's financial report released on September 30 showed expected revenues of $54.23 billion for the fourth quarter of fiscal year 2026, a year-over-year increase of about 379%, with total revenues for the fiscal year at $133.19 billion, more than three times that of the previous year; Samsung Electronics projected record operating profits for the third quarter. On the supply side, Goldman Sachs judges that the likelihood of new DRAM supply before the fourth quarter of 2027 is extremely low. Against this backdrop, Changxin's progress primarily changes the long-term expectations of the supply landscape following 2027 rather than this year's supply-demand gap, potentially adding a variable that needs to be priced into the long-term pricing strategies of companies like Micron and SK Hynix.

4. From Cash Flow to Bonds: A Shift in Pricing Logic

The implicit premise of AI capital expenditure over the past two years has been cash-driven, with tech giants using their cash flows to cover expenditures, and financing conditions were not factored into pricing. This premise is beginning to loosen. According to Bloomberg Industry Research, the funding needs of Meta, Amazon, Alphabet, Microsoft, and Oracle have exceeded internal cash sources, and over the next two years, they will rely more on the bond market, with leverage levels tending to rise—where Alphabet's, Amazon's, and Meta's annual free cash flows have turned negative, with Alphabet’s free cash flow in the second quarter at negative $5.9 billion, marking the first time it has turned negative in a single quarter since going public in 2004. According to Reuters, citing LSEG data, the five major AI companies have issued approximately $220 billion in bonds this year, and Goldman Sachs expects the five major buyers to issue about $250 billion in bonds by 2026.

When capital expenditures shift from cash-driven to debt-driven, an environment where the 10-year Treasury yield operates around 5.3% begins to directly participate in pricing, and changes in financing costs may affect the pace and order of capital expenditures. From the readings above, this round of sell-off is more likely reflecting expectations of marginal tightening in financing conditions rather than a contraction in AI demand itself, which affects valuations in different directions. If subsequent cloud vendors' earnings call discussions shift to financing rhythms rather than computing capacity gaps, this interpretation will be validated; otherwise, it will need to be corrected.

Next Steps

In the short term, there are four observations to watch. First, the phrasing in cloud vendors' earnings calls; guidance on capital expenditures and financing statements might be more revealing than quarterly profits. Second, the production rhythm of Changxin's 4F² DDR5 RDIMM; the end-of-year launch is just the first step, with the capacity ramp-up in 2027 deciding the magnitude of supply landscape changes. Third, the visibility of optical communication companies' orders; a combination of strong orders and weak stock prices indicates that the market is pricing financing conditions. Fourth, the sustainability of Asia-Pacific receptions; the KOSPI has fallen for five consecutive days, and foreign capital has continuously net sold, with the performance of Samsung and SK Hynix being directly indicative of storage chain sentiment. To what extent re-pricing has been factored into the market remains to be observed.

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