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LivestreamMenuChip stocks have fallen off a cliff over the past week, but traders are seeing it as more of an unwinding in the momentum play than a sign of fundamentally tapering demand within the artificial intelligence boom. The iShares MSCI USA Momentum Factor ETF (MTUM) , which tracks stocks that tend to trade in line with recent trends, had dropped just over 10% from its high close on June 22 to its Wednesday open – marking a formal correction – before it bounced in early trading Wednesday morning. At 12:30 p.m. ET, MTUM was up 0.4%. MTUM 1M mountain MTUM past month Accordingly, Wall Street trading desks aren’t seeing signs of a panic in the chip space or in AI stocks more broadly. Instead, they’re pointing to intact memory fundamentals, aggressive profit taking in equity markets and concentrated outflows from momentum-based investing plays. “While momentum is clearly getting wrung out, the broader AI infrastructure narrative doesn’t look like it’s cracking. If anything, the latest headlines are telling the opposite story,” UBS traders wrote in a Wednesday note. “It feels much more like an orderly de-risking exercise than a forced liquidation event.” Both Goldman Sachs and Deutsche Bank traders noted Wednesday that some of the high-momentum benchmarks they were tracking had fallen more than 20% in recent days and that nobody is hitting the panic button so far. “[The] fundamental view of the group remains positive and, despite the magnitude of the selloff, we haven’t seen panic mode on the desk yet,” the Goldman trading desk wrote. Jordi Visser at 22V Research called the downturn in chip stocks an “AI capex air pocket” in a research note on Tuesday, saying pockets can occur “if the physical infrastructure curve runs ahead of the application monetization curve.” With the AI investment thesis still solid, JPMorgan traders said Wednesday that it might be time to buy the dip. “Was yesterday the bottom? We think you buy the dip,” they said. “It feels like we may have seen the end of the momentum unwind.” Markets appeared to act on the advice, with Broadcom up 6% in midday trading. Micron gained ground earlier in the session, but was trading off its highs for the day. Most of the big chipmakers were in the green in the first 30 minutes of trading on Wednesday. The memory sell-off was bolstered by a revenue miss by Samsung this week on sky-high expectations and comments from Amazon that the company wouldn’t be issuing any more debt this year. Despite the outsized momentum factor in the recent sell-off, some on Wall Street saw the response to Samsung’s fundamentally robust earnings report as a warning sign of more serious risks to markets than technical factors. “The reaction to the Samsung preliminary Q2 results on Tuesday is a giant red flag ahead of the upcoming earnings season (where results/guidance are likely to be very strong, but maybe not enough to satisfy elevated expectations),” Adam Crisafulli, founder of Vital Knowledge, wrote on Wednesday. An additional catalyst for memory stocks will likely come at the end of the week when South Korean memory maker SK Hynix lists 18 million U.S. shares in an attempt to raise nearly $30 billion in capital. “The upcoming Hynix ADR listing and a very high earnings hurdle over the next few weeks could easily provide the next catalyst,” UBS traders wrote on Wednesday.Read More
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