As October 2026 unfolds, A-share investors face an unavoidable question: does the next market rally still depend on technology? The STAR 50 Index fell more than 30% in the third quarter, and margin financing balances slid from a June peak of 2.87 trillion yuan to 2.32 trillion yuan. Pessimists argue the technology rally is over, yet many optimists remain. For instance, Guosen Securities' fourth-quarter outlook explicitly stated that "technology remains the main line of the market" and that AI hardware is poised for a second wave. Both sides seem to have a point. But in my view, anyone still using the term "technology sector" to make judgments is likely to get it wrong.
The Term "Technology Sector" Has Become Somewhat Obsolete
Consider a set of data. According to Wind's three-tier industry classification, as of October 19, semiconductor materials and equipment had risen roughly 47% in 2026, ranking first across the entire market. Meanwhile, the software industry had fallen more than 27%, ranking fourth from the bottom. The gap between the two is nearly 75 percentage points. This is not a question of whether the "technology sector" is strong or weak. It reflects a dramatic K-shaped divergence happening within technology itself. Looking at earnings, according to mid-year 2026 reports from listed companies, the electronics industry saw net profit attributable to parent companies surge 172% year-on-year, with the semiconductor sub-sector posting profit growth as high as 607%. The computer industry saw profit growth of 144%, but with "strong hardware, weak software." AI servers and computing hardware supported growth, while losses on the software side widened year-on-year. The media industry saw net profit attributable to parent companies grow only 8%, with game exports and AI short dramas performing well internally, while traditional advertising and offline media struggled to recover. Within the same "technology" label, some are enjoying summer while others are enduring winter. This means the question of whether the next rally will still depend on technology is itself wrongly framed. The correct question is: within technology, which sub-sectors will emerge victorious in the next rally?
The Shift from Broad Beta Gains to Alpha Selection
In a mid-September livestream, China AMC noted that the telecom and electronics sector leading gains in 2025 was driven by industry beta. Simply picking stocks within the sector would likely yield considerable absolute and excess returns. But by the first half of 2026, returns had clearly concentrated in core heavyweight leaders, with the dispersion of individual stock returns within the sector rising significantly. The exact words were: "The market is gradually evolving from broad industry beta to narrow sub-sector beta, and even toward individual stock alpha." A brokerage strategy report reached a consistent conclusion: within the technology space, leaders in semiconductor equipment, high-end computing chips, and optical modules with technological and ecosystem barriers enjoy scarcity premiums, while homogeneous manufacturing and low-end packaging and testing segments see persistently depressed valuations. Intra-sector divergence is stronger than inter-sector divergence. In other words, the phase where "buying a tech ETF meant making money" has likely passed. But this does not mean technology lacks opportunities. On the contrary, the AI industry trend is still accelerating. The industrial fundamentals are sound. The problem is that industry prosperity does not equal broad sector gains. When market pricing for AI already covers earnings expectations through 2027 or even 2028, the marginal boost from positive news fulfillment will inevitably diminish. Capital will no longer indiscriminately buy all tech stocks but will become increasingly selective.
The Margin Financing Retreat Exposes a Neglected Signal
At the end of June 2026, A-share margin financing balances reached a peak of 2.87 trillion yuan, accounting for 2.71% of free-float market capitalization. By October 19, margin balances had dropped to 2.32 trillion yuan, with the ratio falling to 2.52%. But one detail is worth noting: margin funds did not withdraw entirely but redistributed within technology. For example, in early September, margin funds still concentrated on optical communications, optical modules, circuit boards, AI computing power, and chips, with net margin inflows into optical communications and circuit boards each exceeding 2 billion yuan. Meanwhile, circuit boards, whose crowding levels had risen to highs, faced profit-taking pressure. Leveraged funds were voting with their feet: not leaving technology, but switching from crowded technology to less crowded technology. Not only are margin funds repositioning, but major institutions also showed clear divergence in their fourth-quarter strategies recently. When the most optimistic and most cautious institutions coexist, it signals that the market is at a critical juncture of consensus disintegration. Previous investment logic is failing, and a new framework has yet to be established.
The Real Main Line of the Next Rally and Related ETFs
Back to the original question: does the next A-share rally still depend on technology? My judgment is that the main line of the next rally is not "broad technology" but requires seeking opportunities within sub-sectors of technology. For ordinary investors, diversified allocation through ETF products in sub-sectors may be a more suitable approach. Three directions are worth watching. First, segments within AI computing hardware that have "low crowding plus prosperity verification." Directions such as semiconductor equipment, advanced packaging, and optical chips have both industrial support from global AI capital expenditure and trading crowding that has clearly retreated from third-quarter highs. Domestic semiconductor equipment companies' contract liabilities remain elevated. However, segments like memory where price increases are slowing may have entered the latter half of "shortage-driven overheating." In this direction, China AMC STAR Semiconductor ETF (588170) and China AMC Semiconductor Equipment ETF (562590) are worth watching. But the logic here is not "chasing gains" but "if you agree with prosperity verification, wait for pullbacks to pay attention." Second, the AI application side, switching from "buying shovels" to "digging for gold." Referencing the 2012-2015 mobile internet experience of diffusion from hardware to software content, once computing infrastructure reaches a certain density, the application side often offers greater elasticity. AI's cost reduction and efficiency gains in advertising, marketing, gaming, film and television have been preliminarily verified. Although computer software currently faces earnings pressure, large-scale monetization of AI applications is only a matter of time. ChiNext AI leans toward applications and terminals, while STAR AI leans toward chips and upstream. If you agree with the logic of AI diffusing from computing power to applications, China AMC ChiNext Artificial Intelligence ETF (159381) is a target worth studying. Third, the market-neglected "technology plus" crossover areas. Directions such as new energy plus AI (computing-power coordination), automotive intelligence, and robotics benefit from AI technology diffusion without being as crowded as pure tech stocks. Robotics is a typical crossover of "AI plus manufacturing." If you agree with the trend of AI penetrating from the virtual to the physical world, China AMC Robotics ETF (562500) is a variety worth watching after a pullback. Of course, the above judgments are premised on no fundamental reversal in the AI industry trend. If cloud providers' AI capital expenditure slows substantially in 2027, prosperity expectations across the entire computing power supply chain will face downward revisions. Additionally, the 10-year U.S. Treasury yield remains elevated above 5%, exerting sustained pressure on high-valuation tech assets. Uncertainty over the Federal Reserve's subsequent rate hike path remains the biggest external variable for the technology sector. In one final sentence: in the next rally, what matters is not whether you are bullish on technology, but whether you can distinguish the A-side from the B-side of technology.
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