Chen Guo: The Semiconductor Bear Market Deepens, Nasdaq in Jeopardy

Source: Global Market Broadcast

A historic moment for the US AI industry since Chatgpt: Microsoft has almost as expected become the first major American company to lower its AI CAPEX, and its stock price was immediately rewarded by capital. It is likely not going to be the last.

As we mentioned before, at least one CSP would miss CAPEX, and stock price trends also indicated that capital expected the highest probability of Microsoft, led by professional managers, to lower capital expenditure plans.

Today, the truth is revealed: $190 billion was lowered to $175 billion. Microsoft announced the downward adjustment despite last quarter’s earnings report exceeding expectations across the board, and after the announcement, the stock price surged.

Another company, Meta, led by its founder, is not that stubborn either: instead of raising the lower bound of its capital expenditure plan from $125 billion to $130 billion, under capital pressure, it's almost as if they are not raising it any further.

This shows an attitude: Zuckerberg cares about investment returns and company market value; Meta is not Oracle.

Of course, capital is still not satisfied: Meta’s free cash flow is about to turn negative at any time, and even the “A-student” Microsoft has revised down, Meta should be making a greater revision to its CAPEX.

It is highly likely that capital will continue to sell Meta and switch into Microsoft, Apple, or even Coca-Cola and other industry leaders with stable FCF, until Meta learns from Microsoft: to deliver a FCF-beating report card while further controlling CAPEX.

For US stocks, since the tech sector has already experienced an expansion in valuations priced in, and the honeymoon period of the AI agent—the coding bull—has ended. Before seeing a new credible and substantial “AI applications” opportunity, raising AI CAPEX is seen by Wall Street not as a smart investment but as a bet that should be controlled. The US semi-bear market is sinking deeper.

From the FCF and capital returns perspective, Microsoft has outperformed expectations; Google and Meta have both set lower expectations; Amazon encountered poor demand when issuing debt previously; oil prices and US Treasury yields are still climbing; and the Nasdaq remains in a tricky situation.

Finally, on a positive note: Chinese tech stocks are experiencing continuous net capital inflows. Since youth cannot be retained, one might as well embrace maturity. As the US silicon-based upstream faces growth pressure, it’s better to focus on the downstream Chinese silicon-based and carbon-based sectors with marginally improving growth, such as Hang Seng Tech. Since Nasdaq’s FCF has deteriorated, it’s preferable to choose Chinese “sauce-flavor” tech with better business models and FCF, which do not need to remain at the gaming table constantly investing in AI CAPEX.