🧭 Goldman Sachs: The semiconductor rebound could continue, with capital returning to storage and equipment

Goldman Sachs trading desk July 23 quick take: The semiconductor rebound could continue, as capital is re-filling storage and equipment.

Key numbers: Since mid-June, hedge funds have unwound about 80% of the cumulative net buying of global semiconductor and equipment stocks from the start of the year, reversing crowded positioning significantly. Global semiconductor and equipment net allocation as a share of Prime Book fell from a June peak of 24% to about 19%, still at the 84th percentile for one-year and the 97th percentile for five-year periods; the U.S. peers fell from about 14% to about 11%.

Goldman Sachs believes rapid deleveraging is largely done. As long as subsequent earnings and AI capital expenditure guidance do not deteriorate, capital is likely to first return to the areas that were hit hardest and still have fundamentals support—storage (STX, WDC, MU, SNDK) and equipment (AMAT, ASML, LRCX).

Earlier, we repeatedly warned that extremely crowded semiconductor positioning was a risk factor for a pullback. Now positioning is still somewhat high, but crowding has clearly eased. The sustainability of the subsequent rebound depends on three watch points: ① whether AI capital expenditure from cloud providers continues to be revised upward; ② whether storage prices and orders can support earnings expectations; ③ whether equipment stock orders can validate that AI expansion is still in progress.
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