Is the Market Turning Away from Technology?

Current Market Conditions

Recent weeks have shown a significant decline in the performance of technology companies, with the notable exception of semiconductor manufacturers. While semiconductor stocks have seen returns in the triple digits since March, hyperscale tech companies have experienced substantial losses, ranging from a few to several dozen percent in market value over the past month.

AI Investment and Monetization Challenges

The massive investments in artificial intelligence (AI) by leading U.S. technology firms necessitate a strong justification through effective monetization. The current skepticism regarding monetization is exerting downward pressure on the market. Until the next financial results are released, speculation dominates the market, although specialized data aggregators, such as the Silicon Data LLM Spending Index, provide insights into monetization challenges.

This index has shown a high correlation with the valuations of hyperscale companies, and its recent decline has contributed to the downturn in the technology sector. In contrast, semiconductor companies continue to thrive as they profit from hardware sales rather than AI services.

Two-Speed AI Market

The AI industry is currently characterized by a "two-speed" segmentation: "low" and "high" or "frontier" intelligence. High-end AI models, such as ChatGPT 5.5, are impressive but come with high costs, while low-end models are experiencing significant price reductions. This trend is leading companies to favor low-end AI solutions, which are adequate for many applications.

Market Dynamics and Future Outlook

The shift towards more affordable AI models is not a new trend, as evidenced by previous market fluctuations. The relationship between price and demand suggests that as prices decrease, demand may increase significantly. AI tokens exemplify this dynamic, as they approach theoretical price points that could stimulate demand.

As the next generation of processors, such as the "Blackwell" series, is expected to reduce costs dramatically, businesses may adapt to these new realities, allowing AI solutions to ascend the value chain and improve profit margins. However, this transition will take time, which may not align with the immediate expectations of investors.

Concerns regarding AI monetization are likely to persist, and further declines in the market may still occur. Nevertheless, the current sell-off is viewed more as a temporary setback for the AI bull market rather than a definitive barrier. A more thorough evaluation of AI investment theses is anticipated by the end of this year or early next year, particularly with the upcoming IPOs of companies like Anthropic and OpenAI.

Microsoft's Market Position

Microsoft's shares are nearing a critical resistance level around $300, which has been tested during previous market declines. The appearance of a "death cross" in its price chart, typically a bearish signal, may indicate that the stock is nearing the end of its decline rather than signaling a deeper drop. Given the historical behavior of the stock, a similar pattern may emerge again.