While major technology companies in China, especially those involved with AI, are in the process of forecasting earnings and profits with expectations of excellent results, their stock values have been declining continuously. This is because investor expectations have risen sharply after seeing AI stock prices surge for several months earlier. As a result, these earnings reports no longer surprise the market. Consequently, even if earnings are good, they may not be sufficient to push stock prices higher.
Several Chinese companies in the chip supply chain have gradually released preliminary earnings forecasts for this quarter, predicting profit growth rates ranging from 1,000% to 60,000%. However, stock prices have moved in the opposite direction—some companies' shares rose slightly, while others dropped immediately.
The CSI 300 Information Technology Index, which includes semiconductor and electronic parts stocks listed in China, has continued to decline over the past week after soaring as much as 80% in the second quarter of this year. Investors now view the stock prices as overvalued. Currently, the index trades at a Forward P/E of 36 times, up from 28 times in April.
Analysts, according to a Bloomberg report, note that Chinese stock trends now depend more on investment positioning and investor expectations than on fundamentals or actual earnings. Moreover, investors already anticipate that these companies’ earnings will definitely be strong.
A clear example is Shannon Semiconductor Technology Co., whose stock has dropped more than 20% despite forecasting profits as high as 2,000%. Similarly, Shenzhen Techwinsemi Technology Co. forecasted first-half profit growth up to 5,600%, but its shares immediately fell about 10%.
Another case is Shenzhen Longsys Electronics Co., which announced a potential profit increase of up to 62,200%. After the announcement, its shares rose about 10% before falling more than 10%, erasing all gains.
This reflects that investors are no longer persuaded by profit forecasts and are instead awaiting full earnings reports that companies will release in August to see if actual performance is strong enough to drive stock prices up.
China International Capital Corp. (CICC), a leading Chinese securities firm, released an analysis forecasting that earnings in AI hardware, processing infrastructure, and upstream suppliers benefiting from higher product prices will continue to grow strongly.
However, due to the slow recovery of consumption in China, investors are beginning to question whether profit growth across many industries can be sustained long term.
The Fear/Greed Indicator of the STAR 50 Index, which mainly includes semiconductor stocks, has dropped to its lowest negative level since April 2022. This reflects a weakening of buying pressure and intensified selling due to concerns that tech stocks are overvalued, increasing market volatility.
Another reason investors have started selling tech, chip, and AI stocks is likely portfolio adjustment ahead of the historic CXMT IPO planned for this month. Some view this major IPO as a warning sign since historically, large highly anticipated company listings often occur when the stock market is near a short-term peak before entering a downturn.
Additionally, Chinese tech stocks face pressure from external factors such as volatility in the global AI industry and anticipated interest rate adjustments in the US, both affecting the investment climate for China's tech sector.
On 16 July in the US market, the atmosphere was similar to China’s as semiconductor stocks faced a fresh wave of selling despite strong earnings from giants like TSMC.
The Dow Jones Industrial Average fell 0.20%, the S&P 500 dropped 0.51%, and the Nasdaq Composite plunged 1.47%. The main pressure came from the PHLX Semiconductor Index, which tumbled 4.3% after major chipmakers including SanDisk, Seagate, Micron, Intel, and AMD all declined simultaneously.
Goldman Sachs analysis indicated that net hedge fund investment in tracked AI stocks has fallen to the lowest level this year, signaling many institutional investors are gradually selling these stocks to realize profits after AI shares surged strongly recently.
In Japan, during Friday morning trading in Tokyo, Kioxia shares dropped as much as 16%, reducing the stock price by 52% from its recent peak after listing last month, wiping out at least 30 trillion yen (about 185 billion US dollars) in market value.
SoftBank shares fell 9.2%, Tokyo Electron, a chip equipment maker, dropped 9%, and Advantest, a chip testing equipment producer, plunged 9.4%, following the downward trend of US tech stocks the previous night.
The South Korean stock market remained closed for a public holiday, but on Thursday, SK Hynix shares closed down more than 11%, while Samsung shares also dropped over 8%.
Overall, markets in the US, South Korea, Japan, China, and globally are moving in the same direction. Investors are taking profits and reflecting growing concerns about whether the rapid acceleration of AI investments recently will be worthwhile and whether upcoming corporate earnings can meet investor expectations.
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