Where to begin
In 2026, the STAR 50 index peaked at 2214.61 points, an intraday record set on June 30. By the close on July 29, the index had fallen 0.87% to 1678.74 points, representing a decline of approximately 24.2% from its 2026 high.
The industrial profit data for the January-June period, particularly the strong performance of the electronics sector, provided crucial fundamental support for the earlier rally in technology stocks. The recent sharp correction is the combined result of short-term profit-taking, concerns about cash flow and structural imbalances exposed in macroeconomic data, and fluctuations in market sentiment. This reflects the market's dual focus: while confirming industry trends, it is also conducting a more detailed assessment of earnings quality, cash flow conditions, and the balance of the macroeconomic recovery.
Industrial profits for the first half of the year rose 18.7%, with the electronics sector surging 96.9%
Data from the National Bureau of Statistics shows that for the first half of 2026, industrial enterprises above a designated size achieved total profits of 3947.99 billion yuan, a year-on-year increase of 18.7%. Operating revenue grew by 6.5% year-on-year, and the operating revenue margin was 5.70%, an increase of 0.59 percentage points year-on-year, marking the highest level for the same period since 2024. The overall trend indicates accelerated profit recovery and improved margins.
Two sectors stood out in particular. The electronics sector, driven by AI computing power demand, saw profits surge 96.9% year-on-year, contributing 8.5 percentage points to overall profit growth, making it the core growth engine. Sub-segments experienced explosive growth, with integrated circuit manufacturing profits rising 2579.5% and computer manufacturing profits increasing 689.3%, directly reflecting the explosion in AI computing power demand. The raw materials manufacturing sector experienced a cyclical recovery, with profits rising 71.7% year-on-year, contributing 8.8 percentage points to overall profit growth. Within this, non-ferrous metal smelting and rolling processing profits grew by 99.4%, while chemical raw materials and chemical products manufacturing profits increased by 67.8%, primarily driven by strong demand for copper, aluminum, and other non-ferrous metals, as well as price increases. The mining sector also performed well, with profits growing 33.5%.
In contrast, profits in downstream consumer goods, manufacturing (such as automobiles and textiles), and real estate-related industries generally faced pressure.
How industrial profits link to the big tech rally from April to June
There is a direct logical connection between the industrial profit data for the first half of 2026, particularly the explosive growth in the electronics sector, and the concurrent surge in technology stocks. The near-doubling of profits in the electronics industry, especially the high growth in core areas like integrated circuits and computers, provided solid fundamental support for the market. This validated the transition of AI computing power demand from concept speculation to actual profit realization, boosting investor confidence in the long-term growth potential of technology stocks.
Such strong profit data directly prompted the market to significantly revise upward its earnings forecasts for relevant tech companies, particularly those in the semiconductor, server, and AI hardware supply chains. The improvement in earnings expectations was a key driver of stock price increases. The data clearly shows that new productive forces, represented by AI computing power, have become a major source of industrial profit growth. This reinforced the market consensus on the technology industry as a new economic driver and a long-term investment theme, attracting significant capital inflows.
In short, the industrial profit data, especially from the electronics sector, provided a "fundamental anchor" for the April-June rally in tech stocks, shifting the rally from being driven by sentiment to being driven by earnings, making the trend more sustainable.
Why tech stocks have seen such a sharp recent pullback
Despite the strong profit data for the first half of the year, technology stocks have experienced a significant correction recently, driven by several factors.
First, the rally was too rapid, leading to profit-taking pressure. The surge from April to June created a large pool of unrealized profits. Around the time of the data release, some funds chose to "sell on the news," triggering a technical pullback and position adjustments.
Second, there are concerns within the macroeconomic data's details. The momentum of the recovery is slowing. The year-on-year profit growth rate for June (15.1%) declined from May's level, suggesting the pace of profit recovery is not accelerating and may raise concerns about the slope of future growth. Cash flow and turnover are under pressure, as the data shows the average collection period for accounts receivable extended to 71.7 days, and the turnover days for finished goods inventory increased. This indicates that the improvement in profits has not yet fully translated into healthy cash flow, and the recovery in end-user demand remains uneven, potentially constraining companies' future capital expenditure and expansion plans. The structural divergence is severe, with profits highly concentrated in a few sectors like electronics and raw materials, while broad areas like automobiles, consumer goods, and real estate continue to decline. This "ice and fire" scenario may cause the market to worry about the breadth and resilience of the overall economic recovery, thereby affecting long-term demand expectations for tech stocks.
Third, market sentiment and capital flows are volatile. After a sharp rally, market sentiment can easily turn cautious. Any marginal changes in the macroeconomic outlook, industrial policy, or the external environment can trigger rapid capital outflows and increased volatility.
Fourth, valuations need to be digested. While earnings expectations have been revised upward rapidly, the valuations of some tech stocks have also reached high levels. The pullback is also a process for the market to digest these valuations and find a more reasonable pricing level.
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