In the past few weeks, the chip sector has undergone a rapid correction that has been quite suffocating.

The DRAM ETF has pulled back about 25% from its high on June 22, the semiconductor ETF (SMH) has dropped 12% over the past two weeks, and the Philadelphia Semiconductor Index has encountered consecutive corrections. Micron delivered a financial report that can only be described as "explosive"—with revenue of $41.4 billion and guidance pointing towards $50 billion—but the stock price turned downward under the logic of "the good news has been fully factored in".

Meanwhile, Meta, the most aggressive buyer of AI infrastructure over the past two years, officially announced last week that it would lease its excess computing power to external clients, becoming the catalyst for the correction in the chip sector.

Even the most zealous "hoarders" have begun to sell their idle stock.

This signal quickly triggered a chain reaction in the market. Following this, the financial report released by Samsung further solidified investor concerns: the profits in the memory chip industry have skyrocketed, indicating that the entire industry is benefitting from the same super cycle, rather than a single company monopolizing an unreplicable moat. Many investors have begun to worry whether the AI narrative is reaching its end.

1. This may be a "rotation", not an "end"

Amid the pessimism surrounding chips, one of Wall Street's most influential strategists provided a completely different judgment.

Michael Wilson, Chief U.S. Equity Strategist at Morgan Stanley, stated directly in the latest weekly report: Reduce semiconductor holdings and shift towards hyperscale cloud providers.

The weight of this statement lies in its meaning—it is not announcing "AI is finished", but rather saying "the direction of profit distribution has changed".

Wilson's analytical logic is based on the fact that over the past two years, the most profitable segment of the AI supply chain has been the "shovel sellers"—Nvidia, Micron, SK Hynix, which provide the underlying computing power and storage infrastructure for the AI revolution, enjoying the pricing power and high margins from supply shortages. However, as the capital expenditure growth of cloud providers reaches a cyclical turning point, the demand growth for "shovels" is transitioning from an explosive phase to a stable phase.

Going forward, the focus of profits in the supply chain is shifting from the "shovel sellers" to the "shovel users".

Cloud providers—such as Microsoft, Google, Amazon, Alibaba—are the ultimate integrators and commercializers of AI capabilities. They stack chips to build computing power and package that power into cloud services, AI assistants, and enterprise solutions for billions of users and companies around the globe. As the pricing cycle for upstream chips begins to slow, the cost pressures on cloud providers may ease, while their AI service revenues continue to climb.

This indicates a peak in the correction rate, not a peak in the entire capital expenditure cycle. In other words, cloud providers will not stop investing in AI, but the phase of the fastest investment growth may have passed. Correspondingly, chip stock valuations need to shift from "explosive growth" pricing to "mature growth" pricing—this switching process is often accompanied by violent funds migration and stock price fluctuations.

2. Storage falls first, or the beginning of funds rotation

Let’s take a look at how data supports this logic.

Since Meta announced the leasing of computing power, storage chips have become the center of the correction storm—because storage demand directly depends on the capital expenditure willingness of cloud providers. When the largest buyers begin to signal "we have bought enough", the growth narrative for storage suppliers naturally starts to crack.

Micron’s case is the most typical. The company reported revenue of $41.4 billion in Q3, and the management provided a forward guidance as high as $50 billion—this should be considered a "bombshell" in any normal environment. However, the market responded with a decline in stock price. When "exceeding expectations" has become the norm, what truly determines stock prices is no longer the numbers themselves, but "can it exceed expectations again". This kind of trend of "good news becomes bad news once it’s fully incorporated" is itself a characteristic of funds pricing the peak of the cycle.

But if the AI cycle really has ended, what should we expect to see? We should expect all AI-related assets to experience a comprehensive collapse—cloud providers, AI application companies, and Chinese concept tech stocks would all be affected.

However, the picture presented by the market is: Funds are flowing out of chips, but into another AI narrative line.

3. Alibaba surges 11%: a signal of new rotation

One of the most compelling pieces of evidence occurred in the U.S. stock market yesterday.

Alibaba's U.S. stock price surged 11% in a single day. Prior to this, the chip sector was undergoing a brutal sell-off. If the AI narrative truly collapsed, Alibaba, as a player in the lower reaches of the AI supply chain, should have seen a synchronous decline. But in fact, the opposite occurred—capital withdrew from chips and surged towards Chinese cloud computing and AI platform companies represented by Alibaba.

Two layers of logic are resonating behind this.

The first layer of logic is the rotation itself. As Wilson noted, the profit focus in the supply chain is changing from hardware infrastructure to software platforms and cloud services. Alibaba, as the largest cloud provider and one of the AI large model developers in China, is positioned to benefit from this shift in profit distribution.

The second layer of logic has significant geopolitical undertones. There are market rumors (not yet confirmed by authoritative sources at the time of publication) that the Chinese government plans to impose stricter restrictions on the export of advanced AI models and their access abroad. This policy signal suggests that AI competition between China and the U.S. is becoming further heated—each country is trying to build a self-controlled AI technology stack. In this broader context, local platform companies with a complete AI ecosystem (cloud computing, large models, application scenarios) have their strategic value reassessed by the capital market.

It is noteworthy that U.S.-based cloud providers—Microsoft, Google, Amazon—have not shown as dramatic a positive response in their recent stock price performance as Alibaba has. This may be due to their valuations already being at a high level, or perhaps because the market is still digesting the suppressive effect of "capital expenditure growth reaching a peak" on short-term profit statements. However, from the perspective of rotation, if funds are indeed migrating from chips to cloud platforms, a valuation correction for these giants is likely only a matter of time.

4. In closing

The correction in chip stocks is painful, but the story of AI is far from over.

It’s just that in the next chapter of the story, the protagonists may no longer be those selling GPUs and HBM, but those using GPUs and HBM to build the next generation of the internet. Funds are flowing from the "shovel sellers" to the "shovel users"—this is not the funeral of AI; it is a redistribution of profits within the AI supply chain.

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【Disclaimer】This article is for market observation and commentary only, representing the author's analysis and personal views of publicly available information. It does not constitute investment advice or a recommendation or offer to buy or sell any securities. The views cited from third-party institutions (including Morgan Stanley and its analyst Michael Wilson) represent their own or their institutions' positions, and do not represent the views or judgments of BIT. Market trends and individual stock performances are influenced by various factors; the attribution analysis in this article is just one possible interpretation and does not guarantee accuracy or the future market development according to this logic. Investing involves the risk of principal loss; please make cautious decisions.

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