Mr. Huang added fuel to the fire; employment data broke the camel's back

Just now, I reviewed last week’s commentary, which repeatedly hinted at underlying risk concerns: optical communications have fallen from grace, NVIDIA lacks buyers stepping in, there’s uncertainty over who will take over after new highs, capital is rotating into traditional sectors—and especially, the listing of three major new IPOs could trigger a market shift. What’s even more critical is this: the AI sector has seen two consecutive months of one-sided, frenzied rallies, leaving massive unrealized gains overhead that haven’t been digested. For instance, SNDK and MRVL quadrupled in just two months, while stocks that doubled are everywhere. At the slightest sign of trouble, these profit-taking positions could quickly turn into panicked, stampeding sell-offs.

Today’s drop appears driven by fears over extremely strong employment data stoking inflation and rate-hike anxieties—but in reality, the broader market had already entered its final, exhausted phase. Previously, AI stocks routinely surged over 10% daily in a dazzling display, but this week only scattered pockets of strength emerged, lacking both sustainability and sector-wide momentum. This week, Mr. Huang unveiled a new PC processor at the Computex trade show in Taiwan, yet NVIDIA rose only on Monday before slipping into consecutive pullbacks. Then, Mr. Huang boldly declared MRVL’s market cap would surpass $1 trillion—implying a fourfold upside from current levels—sending MRVL soaring instantly. However, it stood alone, unable to ignite any meaningful rally among peers. The software sector, which staged a strong rebound last Friday, carried some momentum into Monday but plunged sharply at Tuesday’s open and continued retreating, confirming it was merely a catch-up move.

Broadcom’s performance around its earnings release this week deserves special analysis! This earnings season, AI stocks have generally delivered results that thrilled bulls, so Broadcom—the last major AI player to report—naturally drew intense focus from all bullish investors. Ahead of the report, Broadcom options showed overwhelmingly bullish positioning, and institutional players along with market makers had already laid their traps! The two consecutive bearish candlesticks right before earnings were clear signals of institutions pumping the stock up only to offload shares. In fact, Broadcom’s actual results were stellar—but institutions nitpicked anyway, launching a ruthless, coordinated assault on bullish traders immediately after the release. The stock plunged straight down, trapping bulls inside with no chance to escape. This wasn’t about the earnings—it was about power! Institutions had already exited their long positions in the stock beforehand, while market makers had pre-positioned in options, jointly executing a post-earnings ambush. Broadcom’s collapse effectively marked the end of this market cycle.

Although the AI narrative isn’t over yet—two of the three upcoming unicorn IPOs are squarely focused on AI, and SPCX also includes AI-related businesses—I don’t expect any major institution next week to actively rescue those trapped in losing positions above, unless they themselves haven’t fully exited yet. Regarding Musk’s plan to let retail investors participate in 30% of SPCX’s IPO, frankly, I’m skeptical! Musk is leveraging retail enthusiasm to prop up the share price, just as he did with Tesla in the past. But institutions won’t let so many retail investors walk away with easy profits—they’ll need to shed some skin first before the big players show any interest. Pessimistically speaking, a first-day IPO dip below the offering price is entirely possible, unless Musk has already arranged for underwriters to support the price on day one—otherwise, wouldn’t that look too embarrassing?

All good things must come to an end. This two-month AI rally has likely already helped many institutional players achieve their full-year targets ahead of schedule. As for the market’s overall direction in the second half, I’m not optimistic at this point! With earnings season now behind us, take some time to calmly study industry trends and company financials, and start building long-term positions in select stocks. Over the next couple of days, I’ll try drafting an article titled 'Viewing Earnings Through a Different Lens.'

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