U.S. stock AI concept stocks collectively corrected, and the market is waiting for the Federal Reserve's statement

Source: BIT Securities

Last night, upon waking up, those stocks in the US market that had surged due to the AI narrative continued to experience price corrections.

Whether it’s NVIDIA, which recently raised prices by over 15% for servers equipped with AI chips, or Alibaba, which just prepared to issue new shares for financing AI infrastructure, it seems that those raising prices and financing under the AI narrative are all facing continuous corrections.

Ultimately, the US stock market closed last night with NVIDIA down 3%, marking its seventh consecutive trading day of decline since 2022; while stocks in the storage chip and optical communication sectors, which used to soar mindlessly under any AI trading narrative, also faced corrections again last night. SanDisk fell 6.45%, Micron fell 5.83%, and SK Hynix fell 5%.

To understand the market's current attitude towards the AI narrative, Alibaba's recent experience is the best entry point.

1. Alibaba raises HKD 80 billion for AI, leading to a 10% plunge in Hong Kong stocks

Alibaba announced plans to place new shares in Hong Kong, raising a total of HKD 80 billion (approximately USD 10.2 billion), with funds directed towards AI infrastructure—this is Alibaba's first share placement since its listing in Hong Kong in 2019, with all chips placed on AI.

Six months ago, this would have been a positive catalyst for stock prices. But the reality is that Hong Kong stock prices plummeted by 10% in response. In a critical moment, management urgently stepped in to stabilize the situation: Group Chairman Cai Chongxin and CEO Wu Yongming each bought approximately HKD 120 million worth of their own shares, barely stabilizing the situation and preventing Alibaba's stock price in the US market from further declining.

The boss personally spending money to support the stock indicates everything.

2. The market's taste has completely changed

What was the AI trading atmosphere in the first half of the year? No focus on profits, no focus on cash flow, only looking at the stars and the sea, only comparing who has a bigger imagination. As long as the story is sexy enough, funds are willing to give valuations.

Now, this way of playing is no longer accepted. The market has started to review the accounts: revenue must be presented, cash flow must be shown, and shareholders must be paid dividends and buybacks. When the news of Alibaba's HKD 80 billion share placement came out, investors' first reaction was not "AI infrastructure has great potential," but "here comes another dilution of my shares."

NVIDIA's situation is the other side of the same coin. Raising server prices by over 15% would have been interpreted as the strongest positive signal in the industry chain—if upstream can raise prices, it indicates strong demand, and storage would benefit. But now, this news ignited two types of panic: downstream worries about uncontrolled AI hardware costs and pressure on investment returns; upstream shareholders are murmuring whether the company is only focused on expanding production while neglecting dividends.

The same action, six months ago was a positive signal, today it is a negative one. What has changed is the set of rules the market has established for the AI narrative.

3. The US Treasury has intervened again, but the market remains skeptical

In addition to the weakness of the AI narrative, the macro pressure from US Treasury bonds is also dragging down the market.

Last night, the US Treasury attempted to intervene again: officials stated they would use the TGA account—the Treasury's "checking account" at the Federal Reserve, which holds nearly a trillion dollars—to directly purchase long-term government bonds and lower yields.

It sounds impressive, but the market is clear: this money cannot all be used to buy bonds; the government's daily expenses and maturing debt repayments must come from this account, and the actual amount that can be used is far less than what is exaggerated. Thus, the reaction was quite tepid: US Treasury yields briefly dipped before quickly rebounding, with the 30-year yield still hovering around the high of 5.246%, remaining unchanged.

4. All eyes are on Waller this Friday

With fiscal measures failing consecutively, the market's attention has naturally shifted entirely to the Federal Reserve.

This Friday, Federal Reserve Chairman Waller will speak at the Jackson Hole Economic Policy Symposium. This is destined to be the most anticipated central bank speech of the year: since taking office in May, Waller has provided almost no forward guidance to the market, and what he says and how he says it will be dissected word by word.

The market wants to know only one answer: in the face of inflation that remains above the 2% target and a continuously deteriorating fiscal situation, what exactly does the Federal Reserve plan to do?

After all, Treasury Secretary Yellen can only play technical moves like adjusting the debt maturity structure; the only entity capable of anchoring inflation expectations is the Federal Reserve. Before Friday, the market will likely remain in a state of anxiety.

5. In conclusion

Looking at the recent market trends, one can see that the market is simultaneously undergoing two "trust reassessments."

One is regarding the AI narrative: shifting from listening to stories and valuing dreams to checking the accounts and demanding cash flow. Alibaba's share placement being sold off and NVIDIA's price increase triggering panic are essentially the same exam—let's see the return on AI investments. This reassessment will not end in a day or two; the volatility of high-profile sectors is likely to remain the norm in the coming days.

The other is regarding US fiscal policy: the Treasury's two interventions have met with cold responses from the market. Relying on technical buybacks and TGA announcements cannot suppress the yields pushed higher by inflation, deficits, and the volume of bond issuance. The toolbox is running low, and the market's patience is wearing thin.

The intersection of these two reassessments will be this Friday at Jackson Hole. A single statement from Waller may simultaneously determine the valuation anchor for AI stocks and the interest rate anchor for US Treasury bonds.

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