Technology stocks deleveraging in progress: Instead of rushing to buy the dip, it's better to wait for the overall environment to stabilize first

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Author: qinbafrank

How should the market look after enduring a tense weekend? Last Friday night, I provided a detailed overview of several factors influencing the US stock market’s movements in the second half of last week. The earliest warning came from a SpaceX alert on Wednesday evening indicating risks. (Related reading: US Stock Correction Warning: What Are the Real Risks of AI? A Clear Look at Software Stocks, Optical Interconnects, SpaceX, and Bitcoin’s New Capital Flows)

The core logic behind this adjustment:

AI/semiconductors experienced a short-term surge, market FOMO was too strong, trading structures became overly crowded, and parabolic rises are inherently unsustainable; then came the SpaceX mega IPO roadshow and subscription pump, natural hedging ahead of CPI/PPI/FOMC data, and strong employment figures reinforcing worries about “higher interest rates lasting longer or even re-raising,” ultimately triggering a concentrated deleveraging in popular tech stocks. Of course, this is a repeat of old themes; the key question is how to view the subsequent developments.

1. Let’s first review several adjustments over the past half-year

There was a similar tech stock crash in December last year. At that time, Oracle triggered concerns over AI return on investment and capital expenditure, followed by Broadcom’s performance, which caused another market sell-off until Micron’s strong earnings and moderate inflation data restored sentiment. The common point in both instances was rate expectation disturbances; the difference was that: late last year and early this year, the market was more worried about AI capex’s numerator-side returns, whereas this time, there’s no consensus that “AI logic has broken down,” and the market is more concerned about the denominator—interest rates, inflation, Fed, geopolitics, and liquidity.

The storage sector is one of the strongest themes in this round of AI trading, with the largest gains, highest prosperity, and strongest profit elasticity, making it the most likely target for concentrated liquidation during crowded trades. Take Micron as an example: from the high of 1089.29 on June 3 to the close on Friday at 864.01, the decline is about 20.7%; if using the intraday low of 850.18, the maximum retracement is about 22.0%. This exceeds the roughly 20% retracement in mid-May but has not yet reached the more extreme panic levels seen during the March war.

KORU, a 3x leveraged ETF for the Korean market, can approximate the risk appetite of Korea’s tech/storage trades but cannot be directly equated with the Korean index itself. From June 1’s high of 1279.70 to the close on June 5 at 610.01, the decline is about 52.3%; using the intraday low of 599, the retracement is about 53.2%.

In terms of space, this already exceeds the mid-May correction;

In terms of time, the current adjustment has lasted four consecutive trading days, approaching previous short-term major decline windows.

Therefore, a relatively reasonable judgment is: under the premise that the fundamentals of AI have not been discredited, the main downward wave in the short term may have already completed a significant portion, reducing the probability of continuous sharp declines.

So this week, a further plunge isn’t necessarily expected, but a V-shaped recovery is unlikely; more probable are sideways consolidation or volume-contracted slow declines. However, as long as US Treasury yields do not fall back and CPI/FOMC data are not released, the market is likely to remain highly volatile, defensive, and waiting for confirmation and better timing.

2. Let’s review some major events from the weekend to today

1. Tensions persist between Israel and Lebanon, with Iran launching missiles and drones against Israel. Trump is urging Netanyahu not to retaliate while maintaining the US-Iran agreement line. This could disturb oil prices and remind the market of inflation pressures.

But there are no signs yet of a full-scale escalation.

Watching Trump’s interview last night, he emphasized efforts to prevent the US-Iran conflict from escalating.

2. Nvidia and SK are expected to announce a cooperation plan on Monday. Jensen Huang’s tone was straightforward: memory, wafers, advanced packaging, silicon photonics—these segments are in short supply and may remain so for years. This statement reconnects several previously discussed market themes.

In the current market environment, this could provide some support, but it’s unlikely to trigger an immediate reversal. Today, observe whether core stocks can hold steady after opening lower. Companies with orders, clients, and industry positioning—will they be the first to attract funds again?

If core companies remain stable while speculative stocks fluctuate wildly, that indicates divergence.

If even core companies can’t hold, the sustainability of this rebound will be poor.

3. Waiting for macro signals

The big moves over the past two months started with macro factors: first, Iran’s ceasefire, then semiconductor shortages, and finally accelerated AI commercialization. These phases unfolded sequentially from early to mid-April, driving a wave of market rallies.

April’s theme was “macro risk easing → AI industry logic re-amplified”;

Now, it’s “AI industry logic intact → macro denominator pressures suppress valuations → so, from a personal view, we should wait for macro stabilization first.”

For a true reversal, macro signals are likely needed first. It’s not necessary to see a macro-level event as large as Iran’s ceasefire in early April; more realistically, the market needs to see the denominator stop worsening.

Why do macro signals matter this time?

Because the main issue behind this decline isn’t “AI logic has collapsed,” but rather the combined impact of interest rates, inflation, Federal meetings, geopolitics, mega IPO pump-and-dump, and excessive market exuberance and crowding—leading to valuation compression and deleveraging.

In other words, the market is no longer asking: “Does AI still have demand?”

Instead, it’s asking:

“If interest rates keep rising, can AI stocks sustain such high valuations?”

So, the priority for a reversal isn’t industry stories but macro pressures easing.

The likely sequence: first macro stabilization—at least CPI must stop exploding, US bond yields shouldn’t continue rising, and perhaps some liquidity from SpaceX IPO has been released; FOMC shouldn’t signal further hawkishness. Only after macro pressures ease will the market refocus on AI fundamentals—trading again on shortfalls in computing power, storage price hikes, AI capex, and commercialization acceleration.

For a reversal, macro signals come first; but they don’t need to turn positive across the board—just stop worsening. Once macro stabilizes, AI industry logic can quickly reconnect. As discussed last Friday night, a complete reversal in the short term is unlikely; patience is needed.