U.S. Market Tech Stocks Strong, AI Narrative Expands Amid PPI Relief

On Friday, August 14, the U.S. market generally performed well, with technology stocks showing particularly strong momentum. Stock prices of companies related to Korea also performed very well.

On this day, the market was led by technology and semiconductor stocks.

The Dow Jones Industrial Average rose 0.13%, and the Nasdaq Composite climbed 0.81% to reach 26,800 points. The S&P 500 also gained 0.6%. The semiconductor index only rose 0.46%, but the increase for Korean-related semiconductor memory companies was very significant.

SanDisk surged by over 13%, Western Digital by over 7%, SK Hynix's ADR by over 7%, and Micron Technology also showed strong performance with over 4%. Intel also rose by over 3%, indicating a fairly strong trend from the perspective of the Korean stock market.

This week's most important economic indicator was the Consumer Price Index (CPI), and unlike in the past, the Producer Price Index (PPI) also played a significant role. This is because raw material prices, especially crude oil prices, have been continuously rising, keeping the PPI at a high level.

Globally, there was concern that a persistently high PPI would eventually lead to an increase in CPI, which is why the PPI data, which was not previously highlighted, has recently emerged as an important indicator. On this day, the market showed relief regarding the PPI index.

Core PPI also rose 4.2% year-on-year, but this indicates that the already high inflation rate is slowing down somewhat. Month-on-month core PPI rose 0.2%, lower than last month's 0.4% and less than expected, which generally reassured the market.

The forecast for two interest rate hikes has now disappeared.

Initial jobless claims showed a slight increase to 209,000, but continued jobless claims showed a significant decrease. These indicators generally reassured the market.

Brent crude oil prices fell from $88 per barrel to $86, and gasoline prices also dropped from $3.13 per gallon to $3.11.

Gold and silver prices also showed a slight decline.

The Bank of Korea has begun purchasing gold for the first time since the period of quantitative easing. This can be seen as a response to the depreciation of currency value, and currently, China is also actively purchasing gold.

Gold purchases suggest that the value of money is continuously becoming lighter due to inflation. Currency value constantly changes with inflation, and gold's intrinsic value does not change, thus serving as a defense against the weakening of surrounding currencies. It is also evidence that global currency values are rapidly declining.

This is because salaries are the slowest moving element in the ecosystem.

Salaries, as always, historically show the slowest changes.

This has significantly influenced investment sentiment and market trends.

This expansion of the AI narrative is attracting attention as one of the main drivers that will lead the market in the future.

It is difficult to say that current interest rates are low. The recent 30-year Treasury bond auction yield was 5.216%, an increase of more than 15 basis points from last month's 5.058%. This is a high level, reaching the peak interest rate of 2001.

It is important to remember that interest rates are not low just because they fell for a day. We are simply gradually adapting over time to a situation influenced by strong interest rate gravity.

To increase the U.S. GDP growth rate, it is essential to expand AI facilities, which requires lowering interest rates. The government appears to be working to lower interest rates.

However, it is also important to remember in the current situation that interest rates are not easily coming down.

These geopolitical risks continue to affect oil price volatility.

Reports of increasing demand for secondary batteries from BYD have led to the perception that secondary battery companies have avoided the worst. However, current stock prices do not justify the sales and profits due to the excessive bubble formed in 2023.

Nevertheless, the secondary battery market is seeing a clear shift with demand exploding with the emergence of ESS (Energy Storage Systems). However, due to the large bubble in 2023, the stock market opportunity may not be as significant as expected.

According to an analysis of data center rental cost charts, the rental costs for older models like the A100 have remained similar, both in the past and now. This is because for equipment that has completed depreciation, everything except electricity costs becomes profit margin.

The price of the H100 model has actually risen recently, and the latest models like the B100 Blackwell have fast inference speeds and large processing capacities, but their hourly cost is very high. The reason why prices for older models are not falling despite the need to continuously use the latest models like the B100 is due to the explosive increase in AI demand.

This is because data center construction companies believe they can recover their investment within two years if they build just a little faster than others.

The expectation that quick construction can complete everything within a year and operate for just two years to recover investment, or even sell it, is fueling the investment rush.

Although the LM (Language Model) spending index has been continuously declining since June, the number of AI users is broadly increasing, and attempts to utilize AI are also significantly growing. In particular, many affordable AI solutions supplied by Chinese companies are being utilized intermittently.

This phenomenon suggests that the frequency of using Chinese AI among U.S. developers and in U.S. society is tremendously increasing. The base of usage is not shrinking but continuously expanding, leading to overloaded data centers, but AI companies, after facing initial high-cost issues, are now seeking cheaper alternatives.

Since AI usage remains the same or even increases, they have no choice but to find more affordable alternatives.

In particular, Chinese AI chips like 'Kimi' are also highly rated for their performance, and their adoption in the U.S. market is expected to increase significantly.

Currently, AI companies face the problem of insufficient computational resources and are simultaneously grappling with high costs. To address this, they are investing heavily in computational optimization technologies.

In other words, while the demand for computing power is still high and insufficient, they are simultaneously pursuing a 'two-track' strategy to maximize computational efficiency.

The prevailing analysis is that yen strength would only be possible with a surprise interest rate hike by the Bank of Japan, otherwise, it is difficult to expect yen strength.

The U.S. economy has recorded an average real GDP growth rate of 2.5% since 2023, exceeding long-term trend estimates. However, real income has decreased over the past year, and consumer sentiment has hit the lowest monthly figures three times in over 70 years of survey history.

While demand and economic activity appear robust, the lives of the middle class and below are becoming very difficult.