Chip stocks have somewhat "cooled off," but the AI cycle may not be dead

In the past few weeks, the chip sector has experienced a suffocating rapid correction.

The DRAM ETF has retraced about 25% from its peak on June 22, the semiconductor ETF (SMH) has dropped 12% in two weeks, and the Philadelphia Semiconductor Index has faced consecutive corrections. Micron delivered a report that can only be described as "explosive"—with revenue of $41.4 billion, and forward guidance pointing to $50 billion—but the stock price turned downward under the logic of "good news is fully priced in."

Meanwhile, Meta, the most aggressive AI infrastructure buyer over the past two years, officially announced last week that it would rent out its surplus computing power to external clients, becoming a catalyst for the correction in the chip sector.

Even the most fervent "hoarders" have started selling their idle assets.

This signal quickly triggered a chain reaction in the market. Shortly thereafter, Samsung's earnings report further solidified investors' concerns: the profit surge in the memory chip industry essentially indicates that the entire industry is benefiting from the same super cycle, rather than any single company monopolizing an unreplicable moat. Many investors have begun to worry whether the AI narrative is reaching its end.

1. This may be a "rotation," not an "end"

Amidst the bearish sentiment surrounding chips, one of Wall Street's most influential strategists provided a starkly different judgment.

Morgan Stanley's Chief U.S. Equity Strategist Michael Wilson stated directly in the latest weekly report: reduce holdings in semiconductors and shift towards hyperscale cloud providers.

The weight of this statement lies in the fact that it is not declaring "AI is over," but rather saying "the direction of profit distribution has changed."

Wilson's analytical logic is as follows: over the past two years, the most profitable segment of the AI supply chain has been the "shovel sellers"—NVIDIA, Micron, SK Hynix—who provide the underlying computing power and storage infrastructure for the AI revolution, enjoying pricing power and extremely high margins due to supply shortages. However, as the capital expenditure growth rate of cloud providers reaches a turning point, the demand growth for "shovels" is transitioning from an explosive phase to a stable phase.

Next, the profit focus of the supply chain is shifting from the "shovel sellers" to those "digging with shovels."

Cloud providers—such as Microsoft, Google, Amazon, Alibaba—are the ultimate integrators and commercialization outlets for AI capabilities. They stack computing power with chips and package it into cloud services, AI assistants, and enterprise solutions, selling to billions of users and businesses worldwide. As the price increase cycle for upstream chips begins to slow, the cost pressure on cloud providers will ease, while their AI service revenue continues to climb.

This is a peak in the rate of correction, not a peak in the entire capital expenditure cycle. In other words, cloud providers will not stop investing in AI, but the phase of the fastest investment growth may have passed. Correspondingly, chip stocks' valuations need to shift from "explosive growth" pricing to "mature growth" pricing—this transition process is often accompanied by significant capital migration and stock price volatility.

2. Storage falls first, or the beginning of capital rotation

Let’s see how the data validates this logic.

Since Meta announced the rental of computing power, storage chips have become the center of the correction storm—because storage demand directly depends on the capital expenditure willingness of cloud providers. When the largest buyers start signaling "we have bought enough," the growth narrative for storage suppliers naturally shows cracks.

Micron's case is the most typical. The company reported Q3 revenue of $41.4 billion, with management providing forward guidance as high as $50 billion—this should be a "royal flush" in any normal environment. However, the market's response was a drop in stock price. When "exceeding expectations" has become the norm, what truly determines stock prices is no longer the numbers themselves, but "can it exceed expectations again?" This "good news fully priced in becomes bad news" trend is itself a characteristic of capital pricing at the cycle peak.

But if the AI cycle really has ended, what should we see? We should see a comprehensive collapse of all AI-related assets—cloud providers, AI application companies, Chinese concept tech stocks, none spared.

However, the market picture shows that capital is flowing out of chips but into another AI narrative line.

3. Alibaba surges 11%: a signal of new rotation

One of the most compelling pieces of evidence occurred during yesterday's U.S. stock market session.

Alibaba's U.S. stock price surged 11% in a single day. Prior to this, the chip sector was experiencing severe sell-offs. If the AI narrative truly collapsed, Alibaba, as a downstream player in the AI supply chain, should have also fallen. But the opposite happened—capital retreated from chips but surged towards Chinese cloud computing and AI platform companies represented by Alibaba.

There are two layers of logic resonating behind this.

The first layer of logic is the rotation itself. As Wilson mentioned, the profit focus of the supply chain is shifting from hardware infrastructure to software platforms and cloud services. Alibaba, as China's largest cloud provider and one of the AI large model developers, is benefiting from this shift in profit distribution.

The second layer of logic has geopolitical implications. There are market rumors (not yet confirmed by authoritative sources as of publication) that the Chinese government plans to impose stricter restrictions on the export and overseas access of cutting-edge AI models. This policy signal indicates that the AI competition between China and the U.S. is further intensifying—each country is trying to build a self-controllable AI technology stack. In this broader context, local platform companies with a complete AI ecosystem (cloud computing, large models, application scenarios) are being reassessed for their strategic value by the capital market.

It is worth noting that U.S. cloud providers—Microsoft, Google, Amazon—have not shown as dramatic a positive reaction in their recent stock price performance as Alibaba. This may be because their valuations are already at a high level, or it could be that the market is still digesting the suppressive effects of "capital expenditure growth rate peaking" on short-term profit statements. However, from the perspective of rotation, if capital is indeed migrating from chips to cloud platforms, the valuation recovery of these giants is likely just a matter of time.

4. In conclusion

The correction in chip stocks is painful, but the AI story is far from over.

Only in the next chapter of the story, the protagonists may no longer be those selling GPUs and HBM, but those using GPUs and HBM to build the next generation of the internet. Capital is flowing from the "shovel sellers" to those "digging with shovels"—this is not the funeral of AI, but a redistribution of profits within the AI supply chain.

On the BIT (formerly Matrixport) brokerage platform, you can not only trade chip stocks like Micron and NVIDIA but also directly buy real U.S. stocks of cloud providers like Alibaba, Microsoft, Google, and Amazon.

【Disclaimer】This article is a market observation and commentary content, representing the author's analysis of publicly available information and personal opinions, and does not constitute investment advice or a recommendation or offer for any securities transactions. The views of third-party institutions cited in the text (including Morgan Stanley and its analyst Michael Wilson) represent their own or their institution's positions and do not represent BIT's views or judgments. Market trends and individual stock performance are influenced by multiple factors; the attribution analysis in this article is merely one possible interpretation, does not guarantee accuracy, and does not ensure that future markets will unfold according to this logic. Investment involves the risk of principal loss; please make prudent decisions.