ASIC Semiconductor Strength Amid Memory Weakness

The S&P 500 closed up 0.58%, Nasdaq 0.45%, Dow 0.49%, and Russell 0.7%, but showed a corrective pattern of a strong start and weak finish after the mid-session.

This is analyzed to be due to investors taking profits, mainly from stocks that have risen sharply recently.

Memory and equipment-related stocks such as Seagate, Western Digital, Micron Technology, and SanDisk recorded declines.

This is a result of not fully escaping Toshiba's shadow, combined with news of cooperation between Tesla and TSMC, which fueled Intel's stock price decline.

In contrast, ASIC-related stocks, including Broadcom, showed gains due to an inflow of bargain-hunting buyers.

While the utilities sector showed an upward trend, Google signed a 20-year long-term power supply contract with Constellation.

This indicates that securing power for data center operations has emerged as a key challenge amidst the rapid growth of the AI industry.

According to the September employment report released last Friday, job growth in the US slowed more than expected.

As a result, investors significantly lowered their expectations for a Federal Reserve interest rate hike in October, which served as a major backdrop for the recent market rally.

Furthermore, concerns over oil supply through the Strait of Hormuz partially eased, and Marine Le Pen's fiscal consolidation plan ahead of the French presidential election contributed to the stabilization of Euro government bonds, helping market stability.

Goldman Sachs maintained an optimistic outlook for the current stock market.

While interest rate hikes are acting as a market headwind, they assessed that it is not severe enough to cause a market collapse.

The current sideways movement of the S&P index is attributed to the bond market crash and concentration in specific stocks; the fundamental upward trend remains valid, and the year-end closing index is expected to be higher than current levels.

Stock prices are determined by the product of Earnings Per Share (EPS) and the multiple, with earnings growth itself acting as a powerful driver of stock price appreciation.

Due to the impact of interest rate hikes, the multiple has fallen from the previous 23-24x to around 19x, but corporate earnings growth is the key factor driving stock prices, more so than short-term market noise.

Notably, AI infrastructure-related stocks are driving half of the total growth, with companies like Nvidia and Micron expected to lead AI earnings growth.

Despite the median index falling 17% from its peak, the index itself remains near its peak, indicating market imbalance.

These few stocks serve as the core drivers defending the market index, with the strength of M7 stocks maintaining the overall index.

High dependence on the AI theme has revealed the limitations of diversification, and a 7:3 portfolio strategy using negative beta stocks as a buffer during tech stock corrections is effective.

This reveals the high dependence on the AI theme and its limitations as a means of diversification.

Stocks with a negative beta can act as a buffer against market volatility during a tech stock correction.

Therefore, a portfolio strategy composed of tech stocks and general stocks in a ratio of approximately 7:3 is suggested.

This suggests the possibility of earnings growth spreading beyond large-cap stocks, presenting a significant opportunity for overall market upside.

The undervalued appeal of general companies compared to hyperscaler firms is highlighted, drawing attention.

The S&P 500 index is projected to rise an additional 5% by year-end and continue its long-term uptrend until 2027.

This shows that the gap in returns between value and growth stocks, and between small and large-cap stocks, is widening.

While the M7 (Magnificent 7) index recorded near-zero returns at the beginning of the year, surging oil and bond yields prompted a reallocation of investment preferences.

The AI boom is still in its early stages, but most companies' financial health is robust, maintaining overall market soundness.

The successful launch of Meta AI (Muse) has expanded Meta's growth potential.

Wells Fargo raised Meta's price target from $796 to $1,000, offering a positive outlook.

Wells Fargo analyzed that the AI-powered product cycle will drive Meta's revenue growth after 2027.

While short-term earnings generation expectations are low, long-term acceleration in the advertising and app segments is anticipated.

Therefore, a strategy of approaching buying when a dip occurs is effective.

Microsoft is restarting the Three Mile Island nuclear power plant through its contract with Constellation.

Google is restarting the Duane Arnold plant in Iowa through its contract with NextEra Energy, and Holtec is restarting the Palisades plant in Michigan.

These examples show that technology companies are actively pursuing the restart of nuclear power plants to meet the explosive power demand of AI data centers.

Such technology licensing collaborations are advantageous for covering R&D costs and diversifying manufacturing bases.

Some evaluate that Intel's stock price decline due to the Tesla-TSMC collaboration issue is excessive, emphasizing that Intel still has a high possibility of securing external foundry customers.

If the valuation adjusts to an appropriate level, approaching from a buy perspective is necessary.