Recent shifts in the AI hardware value chain do not alter the industry's long-term growth trajectory.
During the week of June 1st to 5th, Nvidia's adjustments to the memory configuration of its Rubin architecture cabinets, coupled with stronger-than-expected US non-farm payroll data raising interest rate hike concerns, led to a market correction for three consecutive weeks. Many investors are now questioning whether the current market rally is ending. Our analysis suggests the following:
First, regarding the impact of these events, the rate hike expectations driven by the jobs data have a short-term effect, but there is insufficient basis for further escalation. More noteworthy is the shift in the AI industry's profit distribution, prompting the market to consider whether order revenue and high margins will transfer from memory to other segments. While there will be an impact, this signifies rotation opportunities within the AI supply chain, not a change in the industry's growth narrative or an end to the AI investment theme.
Second, considering market dynamics, the changes in industry profit distribution have created short-term divergence. Previous capital concentration and structural overvaluation in certain segments have amplified recent volatility.
Looking ahead, the foundation for this bull market remains intact, as the three key drivers in the Dividend Discount Model (DDM) have not deteriorated systematically. The probability of sustained irrational selling is low. We recommend focusing on the structural opportunities arising from the reallocation of value within AI hardware amid current short-term divergences.
While market concentration needs to be absorbed, it does not constitute a basis for systemic risk.
As of June 5th, the trading volume of the top 5% of stocks by turnover in the A-share market accounted for 48.9% of the total, indicating a currently crowded micro-trading structure, with semiconductor trading being notably overheated in the short term.
Even under extreme historical scenarios, where this indicator remained above 45%—similar to the micro-structure deterioration seen in January 2015 or February 2021—the corresponding adjustment periods were 22 and 15 trading days, respectively, with the Shanghai Composite Index declining by 8.8% and 8.1%.
Investment Strategy: First Digest Industry Shifts and Capital Concentration, Then Return to DDM and Industry Growth Themes.
The increased volatility in the equity market this week is more a repricing driven by previously crowded trades and short-term changes in the AI hardware profit landscape, rather than the end of the bull market. In terms of timing, interest rate disturbances from the strong jobs data are temporarily suppressing risk appetite, with on-market capital likely trading on shifting expectations first. The cognitive divergence caused by changes in industry profit distribution may be magnifying short-term volatility, amplified by prior capital concentration and structural overvaluation.
However, after event-driven trading subsides, the market will revert to the DDM framework. The AI industry wave remains the core theme driving this bull market. Ultimately, assets that can truly weather volatility are those with earnings support and improving growth trajectories.
For future market direction, the main theme remains technology and growth, but the strategy is not simply chasing high-flying sectors. Instead, it involves structural upgrades along the "secondary ignition" vector. First, focus on domestic computing power. The computing power theme is not over, but within it, greater emphasis should be placed on domestic computing power, driven by the convergence of industry trends, import substitution, and improving order momentum. Second, consider the AI power capital expenditure chain.
AI-driven prosperity is spilling over along the "computing power—power—resources" path. Key areas to watch include power equipment, power operators, and some energy metals. Third, look at application gateway assets. For the second half of the AI cycle, focus on gateway assets like internet platforms, which may capture users, scenarios, traffic, and commercialization. Fourth, monitor select cyclical and consumer sectors. There are spot "secondary ignition" opportunities, but these are not yet broad-based themes. Notably, consumption is showing initial signs of recovery, but strong right-side opportunities have not yet materialized.
Risk warnings: Unexpected changes in macro policy; unforeseen escalation of geopolitical risks; past performance is not indicative of future results.
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