Strong earnings and aggressive capital expenditure plans from technology companies are failing to lift stock prices—a divergence that is leaving investors perplexed. The potential end of the AI boom has evolved from a single narrative into multiple interwoven scenarios, significantly increasing market uncertainty. According to the Nomura trading desk, strategist Naka Matsuzawa noted in a July 17 report that the cost-benefit balance of AI investment has become blurred, with market participants now facing several potential "AI boom end scenarios," leading to a state of doubt and watchfulness.
Multiple Scenarios Emerge, Complicating the AI Boom's Path
Previously, the market primarily evaluated the potential turning point of the AI investment cycle around three scenarios: first, overheated AI investment squeezing cash flow for hyperscale cloud providers, leading to an investment slowdown; second, high memory prices pushing up investment costs, triggering a contraction in AI spending; and third, rising raw material costs exacerbating inflationary pressures, prompting central banks to adopt a more hawkish stance. However, according to the Nomura report, the market is now on alert for the emergence of a fourth scenario—high memory prices triggering overheated semiconductor investment, which in turn leads to a subsequent decline in memory prices. In short, the cost-benefit balance that AI brings to the broader economy has become ambiguous. While semiconductor stocks previously rallied on the back of soaring memory prices, this trend now appears to have reached an inflection point. The coexistence of these four scenarios makes it increasingly difficult to clarify the overall economic cost-benefit equation of AI. Matsuzawa believes it is precisely this multi-path uncertainty that has left market participants in a state of doubt and hesitation.
Tech Sector Divergence Deepens as Strong Results Fail to Impress
A core contradiction in the current market is that healthy tech company profits and aggressive investment plans are not translating into upward stock price momentum. This divergence has been particularly pronounced recently. Within the sector, semiconductors and the MAG7 have shown weakness, while software stocks have remained relatively resilient. For the broader U.S. stock market, defensive sectors and consumer-related stocks have performed better, while technology, capital goods, and bank stocks have generally faced pressure. The VIX index has risen to 16.7, while volatility indicators in the bond and foreign exchange markets continue to decline, indicating that the current uncertainty is primarily concentrated in the equity market. Matsuzawa points out that even if hyperscale cloud providers report stellar earnings and capital expenditure plans over the next two weeks, market reactions across sub-sectors will be difficult to predict simply due to the interference of these multiple scenarios—strong data may not necessarily lead to a broad-based uplift across the board.
Bond Market Yet to Price AI Boom End, Rate Cuts Remain Distant
A notable signal to watch is that if the market truly began pricing in the end of the AI boom, one would expect to see bond buying—as investors position for future rate cut expectations. However, this scenario has not yet materialized. According to the Nomura report, the U.S. Treasury yield curve is experiencing a bear flattening, with the 10-year real yield rebounding to 2.31% and the 10-year breakeven inflation rate continuing to fall to 2.23%. Market expectations for Fed rate hikes have intensified, pricing in 3 basis points for the July meeting, a cumulative 14 basis points by September, and a cumulative 27 basis points by December. The 2-year forward OIS rate, a proxy for the terminal rate, has rebounded to 3.84%. This implies that the current pricing logic in the bond market remains dominated by rate hike expectations, not a shift towards betting on future rate cuts. Based on this, Matsuzawa judges that the market's pricing of an AI boom end is incomplete, and investor skepticism is still in a fermentation stage rather than having formed a clear consensus.
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