- Tickmill’s Patrick Munnelly offered the clearest description of the shift, writing that the market is increasingly asking not only whether AI demand is real, but who is funding it, on what terms and with what margin of safety. Investors are now separating cash-generative platforms and high-quality semiconductor suppliers from capital-intensive infrastructure firms and leveraged financing vehicles.
- Nomura takes the other side on valuation while accepting the same structure. Its analysts argue investors are underestimating AI profitability across the supply chain, because rapid growth requires building computing capacity before the associated revenue matures, creating a cash flow mismatch that losses at a few labs and neoclouds have made look like unprofitability. They note AWS and Microsoft remain highly profitable.
- Monday’s rebound lasted one session. SK hynix closed 4.2% lower and Samsung lost 3%, while ASML fell 2.7%, ASM International 3.1%, BE Semiconductor 2.8%, Infineon 2.9% and STMicroelectronics around 3%.
- The selloff has spread beyond chips into the European industrials supplying the buildout. Siemens fell 3.4%, Schneider Electric 3.5% and Siemens Energy 2.7%, dragging the DAX down 0.5% and contributing to declines in Paris.
What Happened?
Citi analyst David Chew said Asia had the weakest positioning dynamics globally last week, with new short accumulation continuing in the Kospi and Nikkei and net positioning moderately bearish in both. More concerning, he said, is the absence of evidence that an equilibrium is being reached or of any early shift in sentiment. The Kospi fell 3.8% and the Nikkei 1.0%. Munnelly noted the dive in Seoul-listed AI cloud firm Elice on its first day of trading added to concerns about debt-financed infrastructure investment, and that while the differentiation underway is healthy over time it is destabilising in the short run while positioning remains crowded.
Why It Matters?
The two analyst views are more compatible than they appear and together they describe what investors should actually be doing. Both say the same thing about structure: distinguish businesses that generate cash from those that consume it, and suppliers with pricing power from borrowers who must keep refinancing. They disagree only on whether the market has gone too far, with Nomura arguing the cash flow mismatch inherent to building capacity ahead of revenue is being misread as unprofitability. That is a legitimate accounting point rather than a rationalisation, and it applies to a company like TSMC, which guided above expectations while spending a record $64 billion, quite differently from one whose swaps price better-than-even odds of default. Munnelly’s framing matches what Goldman Sachs traders wrote on Friday, that AI capital expenditure has likely peaked and the debate has moved to financing, sustainability and returns on capital. Two desks reaching the same conclusion independently is worth more than either alone, and it means the questions being asked of these companies have changed rather than the answers having worsened. The spread into European industrials is the development to watch. Siemens, Schneider Electric and Siemens Energy are the electrical equipment suppliers to the buildout, and their falling with the semiconductor complex means the repricing has reached the physical infrastructure layer rather than staying in chips and clouds. Citi’s positioning data is the uncomfortable part: shorts building in Asia with no sign of equilibrium describes a market still searching for a floor rather than one that has found one.
What Next?
Meta, Tesla and Netflix report this week and are the first large tests of whether results can stabilise sentiment. Watch whether dispersion within the sector widens further, since both analysts expect differentiation between cash-generative and capital-intensive businesses. Asian positioning is the near-term risk given shorts are still accumulating. For the credit question specifically, Nscale’s attempted listing and Blue Owl’s $6 billion loan for Stack are the next two financings that will test whether lenders have repriced the category or only one company in it.
Affected Tickers and Coins: ASML, 000660, 005930, STM, IFX, ENR, SIE, SU, MSFT, AMZN
Source: The Wall Street Journal
