The market experienced significant volatility this week. After an initial decline at the start of the week, influenced by a "deleveraging" trend in the US, Japan, and South Korea, sentiment saw a partial recovery on Thursday following global AI industry progress. However, a sharp pullback in the AI hardware sector on Friday, coupled with the Shanghai Composite Index falling below the 4000-point mark, has heightened concerns among some investors regarding the future trajectory of the market, particularly for the technology sector.
Nevertheless, from the current vantage point, recent developments suggest that positive signals are accumulating amidst this volatility. The market adjustment triggered by liquidity concerns and industry narratives may be nearing its conclusion, with key changes that could forge a new consensus beginning to take shape.
As the two core factors that previously drove the market adjustment—overseas liquidity and sentiment drag, and the global AI industry narrative—have recently seen critical shifts and validation through positive signals, there is no need for excessive worry about the market's future path. The momentum for a new upswing is being built and nurtured within these fluctuations.
Key Positive Signals Emerging from the Volatility
This week's significant market swings were notable. The initial downturn was followed by a recovery in sentiment, yet the subsequent sharp correction in AI hardware has understandably caused concern. However, beneath this surface turbulence, constructive indicators are gathering.
Firstly, for the broader market, tracked crowding indicators are once again signaling a short-term sentiment bottom. Following the earlier adjustment driven by external factors and subsequent position reshuffling, the overall market crowding has retreated to a bottom range around -1.5 standard deviations. Historically, similar crowding levels seen in early December 2025, early April 2026, and mid-June 2026 all preceded significant bottom-fishing opportunities.
Secondly, regarding the core AI industry narrative that sparked this adjustment, recent progress and earnings validation from industry leaders have helped correct and alleviate prior anxieties. The market's main concerns centered on peaking computing power demand and slow commercial monetization. Recent developments from key players have directly addressed these doubts.
Overseas, cloud giants continue to show strong willingness to invest in computing power, while model developers are exceeding monetization expectations, maintaining the foundation for a "virtuous cycle" between cloud capital expenditure and model return on investment. For instance, Meta announced continued compute investments, Broadcom secured an Apple order, and Micron is advancing US expansion plans. Furthermore, Anthropic's latest Annual Recurring Revenue surged, demonstrating the viability of large language model business models. This high growth supports expectations for increased capital expenditure from core cloud providers.
Domestically, developments have been equally, if not more, positive, exceeding market expectations and representing a significant recent narrative shift. Key factors include the potential for ChangXin's IPO to initiate a new domestic capex upcycle, the commencement of earnings realization for domestic computing power, and the beginning of monetization for local AI services and applications. Following its IPO, ChangXin's expansion is expected to boost orders for upstream domestic equipment, components, and materials. The easing of GPU delivery constraints, alongside improved supply availability and confidence, may accelerate domestic computing power earnings. Performance from certain domestic AI data center chain leaders has significantly surpassed expectations, confirming volume growth. Additionally, Alibaba's latest guidance indicates continued rapid growth for its cloud business, showing domestic AI mid-and-downstream services are starting to deliver financially.
Therefore, with positive validations for the two key adjustment drivers, excessive worry about the subsequent market is unwarranted, as new upward momentum accumulates.
What is the Market Awaiting?
Despite the positive signals, the recent market feel remains one of rotation and tactical positioning, with sector rotation intensity rising to a relatively high level for the year. While AI computing hardware, the market's core focus, is gradually building a new consensus, its volatility remains high. Concurrently, some undervalued sectors with solid fundamentals have staged temporary recoveries, but their sustainability has been limited.
This market state stems from AI computing hardware being the strongest consensus, while capital rotates and awaits clearer confirmation signals. The arrival of such signals is imminent. Key validations to watch include:
First, potential catalyst from leading company earnings reports before July 15th, the deadline for A-share listed company earnings pre-announcements. The market will watch for disclosures that can solidify consensus and validate industry trends.
Second, Taiwan Semiconductor Manufacturing (TSM) will report its June revenue on July 13th and its Q2 earnings and subsequent guidance on July 16th. As an upstream player in the computing power supply chain, its financials and guidance directly reflect changes in global demand. Its order book, capex plans, and capacity guidance will help the market better judge the sustainability of global AI computing demand.
Third, and most crucially, the capital expenditure guidance from the four major North American cloud providers in late July. This represents the right-side confirmation signal the market is focused on to validate the sustainability of global computing demand and the prosperity of AI hardware leaders. The prevailing view remains that capex will be revised upwards, with clarity expected after further communication from the cloud providers, starting with Google's earnings on July 22nd.
As these right-side signals validating global computing power demand and AI hardware company performance become clearer, they will help reduce market volatility and guide directional and structural choices.
Notable Clues from Current Interim Earnings Pre-announcements
Prior to these core validations, the market may continue to focus on domestic growth clues for catch-up plays. Notable "expectation gaps" and clues from current interim earnings pre-announcements include:
AI-related demand remains the most significant driver for listed company performance, with its impact spreading across the upstream and downstream supply chains. Domestically, the AI data center infrastructure chain is already realizing earnings due to expanding local computing demand, representing the area with the most significant marginal change and expectation gap. Additionally, capacity expansion is driving price increases and earnings releases for upstream AI materials like MLCCs, copper-clad laminates, electronic special gases, resins, panels, and refrigerants.
Other noteworthy clues include strong performance growth or turnarounds for numerous lithium battery material companies, as well as undervalued sectors with solid fundamentals such as innovative drugs, shipping, securities, and coal.
For AI computing hardware sectors with strong consensus on growth, such as optical communications and the semiconductor supply chain, while disclosed interim pre-announcements continue to validate an accelerating trend, the market still awaits right-side signals from core leader earnings and overseas financial reports/guidance.
Internally, attention should be paid to the current valuation appeal of the North American computing power chain. Crowding in areas like optical modules, fiber optic cables, and PCBs has retreated to bottom levels, while the valuation gap between A-share North American computing chain leaders and domestic computing chain leaders has narrowed rapidly to levels seen in June of last year.
Risk factors include fluctuations in economic data, policy easing falling short of expectations, the Federal Reserve's rate cuts being less aggressive than anticipated, and escalation in geopolitical tensions.
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