Tech selloff deepens despite strong earnings

00:00:00: Chipmakers remain on the chopping block despite another stellar earnings report from TSMC, highlighting growing investor discomfort with a scale of AI spending rather than doubts about AI demand itself.

00:00:13: Judging by the market's reaction investors will focus less-on headline profit growth this earning season and more on whether companies can demonstrate capital discipline without undermining their long term A.I story.

00:00:26: but even that is going to be risky!

00:00:28: Meanwhile, the rotation into financials and industrials continues but that trade could also come under pressure if the worsening geopolitical tensions in the Middle East continue to push energy prices higher along with yields again.

00:00:42: So welcome to Swissco Steady Market Talk!

00:00:46: It's Friday, July, I'm Ipeko Skardyshkoja.

00:00:50: i will try put these pieces together and discuss what terrible market reaction to incredibly strong earnings mean for weeks to come.

00:00:58: but before I do and as always please keep in mind that opinions are my own, this is not financial advice.

00:01:13: Let's start with TSMC.

00:01:14: TSM C announced a record profit in the second quarter of this year and is seventy seven percent profits growth compared to the same time last year, it's seventy-seven percent profit growth.

00:01:25: The number was well above expectations.

00:01:28: It actually beat already lofty expectations by nearly twelve percent.

00:01:33: He lost the stock price fell five percent after earnings earlier This month.

00:01:38: Samsung had fallen nearly ten percent After announcing in nineteen hundred percent profit surge in the second quarter as well remember.

00:01:46: It was also meaningfully higher than analysts' expectations.

00:01:49: So the inability to trigger a positive market reaction, To such impressive quarterly results shows one thing The pricing across chip makers has gone ahead of itself.

00:02:00: These companies are not only priced too perfection But they're priced increasingly in disconnect with shifting AI outlook.

00:02:09: Because people are growing uncomfortable With massive AI build-out pointing at overcapacity risks on them, the Fed Chair Kevin Warsh and investors are growing increasingly uncomfortable with massive AI spending.

00:02:24: finance, increasingly by debt pointing at over leverage risk.

00:02:30: But technology companies continue spending regardless.

00:02:33: so besides a seventy-seven percent profit growth TSMC yesterday sharply increases sales and escapex projections.

00:02:41: And that is precisely the latter The higher KPEX projection that displeased investors yesterday.

00:02:48: Now today the Korean Cosby Index Is not trading as South Korea is on holiday But SK Hynex ADRs took a thirteen-percent dive in the US session, while NVIDIA failed two point forty percent despite announcing a mega deal with Japan who plans to build a one hundred and fourteen megawatt data center for its homegrown AI model for robots.

00:03:11: One hundred forty megawatts is enough electricity to power around a hundred thousand to one hundred and forty thousand homes or a mid-sized city.

00:03:20: And big Japanese groups are involved in this project including SoftBank, Sony & Honda while industrial names such as Fujitsu and Kawasaki Heavy Industries also included in the broader robotics and physical AI ecosystem.

00:03:36: Alas that didn't help.

00:03:37: NVIDIA gain investors hard yesterday!

00:03:40: is down by more than twelve percent.

00:03:43: Yes, twelve percent in Japan today.

00:03:46: Broadly the Japanese indicate two to five.

00:03:48: index dies four per cent at a time.

00:03:51: I'm talking here this morning with chip makers leading losses there and that tells pretty much about how The Korean Cosby Index would have reacted if it was trading today.

00:04:01: Happily It Is Not.

00:04:02: but next week might not be brighter.

00:04:04: Alphabet Intel & Tesla will be among the major names.

00:04:07: revealed their quarterly earnings Next week, I can't wait to see if they could turn the souring mood around.

00:04:39: not double down on extra infrastructure spending because investors will not be happy with it.

00:04:43: Otherwise, TSMC earnings gave a hint... A very clear hint indeed this week on how the needs would be received by investors if they decided to double-down on their spending plans.

00:04:55: so overall besides banks who banked among other things on massive AI spending financing both stock and bond sales in IPOs like mega IPS for example an energy company benefited from the Iran war-led energy crisis in the second quarter, while the earnings season will not be a piece of cake.

00:05:16: Consumer facing businesses will show how weakening consumer sentiment and tariffs that we tend to forget but are still there have affected spending dynamics.

00:05:27: The number of items sold at grocery stores for example fell nearly two percent according to Bain &

00:05:32: Co.,

00:05:33: which is most likely due to sticker shock all budgets, meaning that passing the higher energy prices onto declines becomes increasingly difficult for businesses.

00:05:45: That in return means that profit margins will be taking a hit and for technology while that sixty-three percent earnings growth estimate could And it could be beaten quite comfortably, but even comfortable earnings won't bring investors back if AI spending continues to go against investor's will.

00:06:10: Maybe not slow because on the other hand big technology companies know very well that cutting AI Spending would be like pulling a block from the bottom of a Jenga tower that is already shaking.

00:06:23: It could bring the whole AI investment story crashing down.

00:06:27: I was saying yesterday that the money that flows out of the big tech is now flowing straight into companies that are in the AR supply chain.

00:06:35: So you see where i'm coming with this right?

00:06:38: The question is what happens when the music stops and whether the big technology would not prefer to keep the boring music going rather than hitting pose altogether because it starts feeling shaky.

00:06:50: we don't know what the future holds but when frenzy is fizzle out, day fizzles.

00:06:56: Netflix for example which was the most heated name of the pandemic months remember that no one talks about anymore fell nearly ten percent yesterday in after hours trading.

00:07:05: After releasing his quarterly results it lost half its value.

00:07:09: indeed since June two thousand twenty five Apple and Netflix are no longer a market moving stock but certainly contributing to bad mood.

00:07:17: as I feature today.

00:07:19: they're currently underperforming their US and European peers into the European Open.

00:07:26: That tells me that the final trading day of this week looks quite bearish, by the hour.

00:07:40: The traffic in the Strait of Hormuz is now declining to levels that we have seen, and unfortunately there's no easy resolution inside Trouble, obviously.

00:07:56: Now the good news is that so far The reaction from oil markets has been contained more content than in early weeks of the uranium war.

00:08:05: US crews still console this a touch below the eighty dollar per barrel mark while brand crude Is steady near the eighty five dollars per barrel level This morning.

00:08:14: and their relatively soft market reaction compared to what it could be It's actually keeping us deals under control this week the u.s.. Two-year yield for example for the fourth straight session and that's mainly thanks to a set of softer than expected CPI.

00:08:31: And PPI figures were released this week in the United States, which is obviously critical factor for financial markets and risk appetite.

00:08:40: but bad news.

00:08:41: we know inflation relief cannot last long if energy prices continue pushing higher Because the software, June inflation data was mainly due to pullback in energy prices.

00:08:52: yet they are going up again.

00:08:54: So you don't need a master's degree in economics too.

00:08:58: guess what will come next?

00:08:59: In this context Europe for example unlike in the US benchmark of European tenure You'll just kept rising throughout this week and even short despite past that.

00:09:08: three point sixteen percent mark.

00:09:11: That was highest level since May peak This year which itself as high level since May, two thousand and eleven.

00:09:19: Interestingly the letter is not helping that you are gain filled against US dollar which holding onto a safe haven gains this week.

00:09:27: but the rotation trade happening out of technology names continues to support the stock six hundred index as financials outflows.

00:09:39: Yet, persistent pressure on yields could compromise that rotation trade in the very short run and that can be a problem for global risk appetite overall when technology stocks are not doing well either but because investment is about chasing the next opportunity.

00:09:56: any pullback across financial markets will give opportunities to enter fresh trades at lower prices.

00:10:03: And if and what happens?

00:10:05: The rotation of financials and industries look right from today's perspective.

00:10:10: So this is all for this week, I'm Ipeko Skardyshkaya and thank you for joining me!

00:10:15: And Thank You For All Your Beautiful and Supportive

00:10:18: Comments!!

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00:11:09: weekend.