Has the adjustment of US tech stocks been completed?

1. Previously, we observed that the maximum drawdown of the Nasdaq during the tech stock boom and the current AI rally averaged around 10% (How much time and space do adjustments occupy in historical tech cycles?). However, given the current divergence between software and hardware, we further analyzed the maximum drawdown patterns of the Philadelphia Semiconductor Index and momentum factors, which better represent the current AI rally.

2. Since June 22, the pullbacks of the Philadelphia Semiconductor Index and momentum factors have largely aligned with historical patterns. The Philadelphia Semiconductor Index/Morgan Stanley Momentum Factor/Morgan Stanley TMT Momentum Factor/Goldman Sachs Momentum Factor/Goldman Sachs Momentum Factor have seen median maximum drawdowns of around 15% during the 1995–2000 tech rally and the AI rally since December 2022. The adjustments since June 22 have basically matched these historical patterns.

3. The valuation of the Philadelphia Semiconductor Index has fallen back to early April levels, with PEG ratios for 2026/2027 at historical lows; current valuations have not yet discounted long-term earnings growth. As of the latest, the TTM and Forward P/E of the Philadelphia Semiconductor Index stand at 43.9x and 22.7x, respectively, essentially returning to levels seen on the first day after the U.S.-Iran ceasefire agreement in early April, sitting only at the 48.3% and 16.9% percentiles since the start of the current AI rally. Moreover, the PEG ratios for 2026/2027 are 0.6/0.4, at historical lows, indicating that current valuations have not yet priced in long-term earnings growth.

4. This week, South Korea—the flag bearer of the AI rally—will face two major catalysts. First, Samsung Electronics releases its earnings guidance on the 7th. Due to one-off bonuses and profit compression from mobile phones, operating profit may slightly miss optimistic expectations, but storage-related businesses are likely to beat expectations (FactSet consensus: DRAM/NAND revenue up 424%/302% YoY). Second, on the 10th, SK Hynix will list on the U.S. stock market. Referencing TSMC’s listing in October 1997, even in a relatively weak U.S. tech environment at the time, TSMC ADR/TSMC stock rose over 10% within five trading days.

5. Last week, concerns triggered by Meta selling computing power did not impact the fundamentals side. First, the H100/H200 leasing price index has been recovering over the past two weeks; second, the EPS expectations for the 25 key AI companies we track have continued to be revised upward; third, market expectations for the capex of core North American cloud providers have not slowed recently. Meta’s 2027 capex saw a slight downward revision, but Google and Amazon were further revised upward.

Source: This article is from the Xingzheng Strategy Zhang Qiyao team.

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