Tech Stocks Attract Interest Ahead of US-China Summit

Key agenda items are expected to include the Iran-Middle East situation, trade tariffs, artificial intelligence (AI) and rare earths, and the Taiwan issue. In particular, China's cooperation on energy is expected to be a critical variable in easing Middle East tensions and lowering oil prices.

Former President Trump emphasized the creation of an 'AI Force,' stating that he would show the same interest in AI as he did in establishing the Space Force. He presented a goal of solving government debt issues through AI and achieving 25% GDP, making AI productivity improvement a key policy direction.

Last week, small caps fell 2.31% and micro caps fell 0.9%, showing weakness. This is mainly attributed to dampened investor sentiment due to interest rate hikes. In contrast, the tech-heavy Nasdaq performed relatively well in the market, being less affected by interest rate increases.

Semiconductor stocks related to memory and CPUs, such as Micron Technology, SanDisk, AMD, and Intel, showed strength. Additionally, security software companies like Palantir, Palo Alto Networks, and CrowdStrike also led gains, drawing concentrated interest in specific sectors.

With the yen exchange rate nearing 158 yen, many in the market believe that a big step interest rate hike of 0.5% or more is needed to effectively curb inflation. Analysis suggests that a 0.25% hike would be insufficient to control the excessively abundant currency supply. Consequently, skepticism about the effectiveness of Japan's monetary policy is spreading.

This indicates a tremendous shortage. A shortage of -3.4 is projected to continue until 2031, with the peak shortage expected in 2028. This data suggests that the upward trend in the semiconductor industry could continue until 2028.

The proportion of HBM (High Bandwidth Memory) within overall DRAM has been steadily increasing, reaching 11.9%, 14.7%, and 20.2% since 2016. This expansion of HBM proportion serves as a significant basis for supporting the continued development of the AI sector.

This is an overwhelmingly high proportion compared to short positions in government bonds (18%) or long positions in M7 stocks (7%).

There is a difference in perspective between the Federal Reserve and Mizuho Securities regarding the main causes of inflation. The Fed views supply-side shocks such as oil prices and tariffs as the primary causes and deems further interest rate hikes less necessary. In contrast, Mizuho Securities argues that robust demand, such as the boom in the artificial intelligence sector, is causing the US economy to grow rapidly enough to trigger inflation. Therefore, Mizuho Securities analyzes that there is pressure for additional interest rate hikes and points out that the Fed is facing a different problem.

The current instability has already lasted for more than six months, and if it continues for another six months, it could enter a dangerous phase. However, if the situation stabilizes within that period, there should be no major problems.

This suggests that the Nasdaq has greater potential for future upside. In contrast, the Dow and Russell indices are expected to have limited rebound potential.

Implementing a single kill switch applicable to all artificial intelligence systems is challenging. This is due to the distributed AI infrastructure consisting of tens of thousands of machines and thousands of data centers. Therefore, international cooperation among nations is essential for kill switch implementation, and a method of verifying operating code at the hardware chip level is proposed as an alternative.

There are concerns that a kill switch could be misused by tech companies to evade responsibility, and that making companies liable for damages caused by AI service usage would bring about fundamental change. In this regard, the EU's AI Act is regarded as a starting point for regulation.

Tech companies should not be left to regulate AI themselves, as corporate self-regulation is unlikely to be effective. Therefore, independent third-party audits are essential, and avenues for global agreements with countries like China must also be explored.