Samsung's plummet disrupts the memory supply chain: Is it a painful correction for U.S. tech stocks, or a "healthy rotation" in HSBC's view?

The Zhitong Finance APP noted that HSBC stated in its US stock strategy report at the end of June that the recent pullback in US tech stocks has not only failed to undermine the broader market rebound but has actually improved market breadth. Meanwhile, earnings forecast revisions remain strong, and valuations have become more attractive.

As investors rotated funds from the tech sector into defensive sectors including healthcare, utilities, and consumer staples, the S&P 500 index fell by 1% in June.

The institution pointed out that this adjustment marks the first substantial improvement in market breadth in four months, with the equal-weighted S&P 500 index outperforming the market-cap-weighted index, and about two-thirds of stocks performing better than the market benchmark.

Despite the increased participation, HSBC stated that the stock market rebound remains concentrated, with over 87% of the S&P 500 index's gains this year driven by semiconductors and technology hardware. Capital goods related to artificial intelligence (AI) have also been major contributors.

Software was the weakest-performing tech sub-sector in June, falling by about 15%, while semiconductor and hardware stocks performed relatively well. The "Tech Seven" averaged a decline of about 9%, which HSBC believes is due to a rotation of funds from high-momentum growth stocks rather than a deterioration in fundamentals.

The bank stated that earnings continue to support the sector. The expected earnings growth rate for the information technology sector and the "Tech Seven" over the next 12 months has risen by about 25% this year, while valuations have fallen to around 23 times expected earnings.

HSBC also mentioned that Micron Technology's (MU.US) recent performance further solidified the recovery of the AI semiconductor industry, with little evidence suggesting that generative AI will pose a substantial threat to software companies in the short term.

The institution expects that falling oil prices will ease overall inflation, but it still predicts that the Federal Reserve will keep interest rates unchanged during 2026 and 2027, despite the market having already priced in expectations for further tightening.

Under the cloud of storage peak doubts, the rotation of US semiconductor stocks has arrived

On July 7th, Samsung Electronics announced its shocking preliminary results for the second quarter: operating profit surged to an astonishing 89.4 trillion won (approximately $58.4 billion), a year-on-year increase of over 19 times. This figure not only broke historical records for South Korean companies but also surpassed Nvidia and Apple in quarterly profits. However, the secondary market responded with a "cold hammer" — Samsung's stock price plummeted nearly 8% during Tuesday's trading, triggering a significant correction in the Korean Composite Stock Price Index and the entire Asia-Pacific semiconductor sector.

Analysts pointed out that after a strong rally, investors had high expectations for Samsung's earnings. When the actual performance exceeded expectations but did not bring "greater surprises," profit-taking ensued. This logic mirrors the pattern seen after Micron Technology's earnings announcement, forming a market inertia of "selling even with good performance."

This bizarre scene of "plummeting after good news is fully priced in" quickly became the focus of debate on Wall Street. Pessimistic analysts, represented by Morgan Stanley, pointed out that Samsung's rise and fall exposed the current "perfect pricing pain" in the AI race Samsung Electronics' recent "performance kill" is essentially an extreme interpretation of the capital market's logic of "buying expectations and selling facts." Over the past year and more during the AI super cycle, Samsung Electronics' stock price has risen significantly—up over 155% year-to-date, and nearly five times since early 2025. Such a massive increase indicates that the market's pricing of performance is already extremely full, leaving very little room for error.

This panic sentiment is rapidly transmitting to the U.S. stock market through the global supply chain. High-momentum semiconductor stocks like Micron Technology and AMD in the memory camp will inevitably bear the "collateral damage" of a phase correction in valuation in the short term.

For U.S. tech stocks, the ripples caused by Samsung are more like a "high-level benign cleansing." It clearly conveys a message to the market: the phase of blindly buying based solely on the "grand narrative of AI" has come to an end, and the U.S. semiconductor sector is transitioning from being "emotion-driven" to a more discerning phase focused on "free cash flow generation capability." The short-term painful adjustment may pave the way for solid U.S. AI leading stocks to create another highly attractive "golden pit."