Non-Typical Downturn Strikes! Bulls Trample Each Other! 3 Key Signals for Bottom-Fishing Entry

SK Hynix has released its second-quarter financial report, with the following results:

Revenue: KRW 79.32 trillion (up 257% year-on-year, up 51% quarter-on-quarter)

Operating Profit: KRW 60.54 trillion (up 557% year-on-year, up 61% quarter-on-quarter)

Net Profit: KRW 93.92 trillion (up 1,242% year-on-year), including a one-time investment gain from the sale of its stake in Japan's Kioxia

Capital Expenditure: Raised to the upper end of the KRW 40–50 trillion range

Net Cash: KRW 88 trillion (up KRW 33.6 trillion quarter-on-quarter)

These financial figures are exceptionally strong from any perspective. However, not only did SK Hynix's stock decline, but it also dragged down the entire global AI supply chain. This was because market expectations for SK Hynix's Q2 results were even higher, or due to concerns that long-term contract price increases were relatively conservative and did not fully capture the short-term memory price surge; as well as signs of slowing growth in average memory selling prices.

Of course, it's not just SK Hynix under scrutiny. TSMC recently announced second-quarter revenue and profits, both hitting record highs. It also raised its full-year revenue growth forecast to over 40%, exceeding market expectations, and increased its capital expenditure—delivering a near-perfect performance. However, concerns arose as its gross margin for Q3 is expected to decline by about 2% due to 2-nanometer process and overseas production factors.

Alphabet reported second-quarter revenue of USD 119.8 billion, up 24% year-on-year, with operating profit margin expanding to 34%. Google Cloud revenue reached USD 24.8 billion, up 82% year-on-year. However, its free cash flow turned negative for the first time in a single quarter. With increased capital expenditure forecast for 2026 and a significant rise expected in 2027, the market is increasingly concerned about Alphabet's free cash flow sustainability.

The stock market is one of the leading indicators of industry and economy. Does this suggest that AI infrastructure investment growth will slow or shrink in scale by 2027? Currently, from supply chain news, financial reports, and forecasts, there are no signs of AI industry cooling. It's unnecessary to pessimistically assume the industry is reversing. However, with crowded AI sector trades, de-leveraging has triggered a 'bull trampling' effect, causing this market correction to be far deeper than expected.

[Typical Downturn] Market peaks → Demand collapses → Inventory surges → Capex cuts → Stock prices crash to bottom (Bear Market)

[Non-Typical Downturn] Strong demand → Capacity expansion → De-leveraging / Valuation correction → Stock price decline

[Typical Downturn] follows traditional economic cycle patterns, whereas the current [Non-Typical Downturn] occurs during a growth phase. Despite high growth in the AI industry, the market is undergoing concentrated correction in the AI supply chain. Yesterday, the Dow Jones Index reclaimed its monthly moving average, and the U.S. Financial Sector ETF (XLF) hit a new high. Both the U.S. and Taiwan economies continue to grow. Has the stock market already peaked in this [Non-Typical Downturn]? But economic indicators and real-world AI industry data remain strong. Investors need not be overly pessimistic.

Market sentiment is currently fearful. For investors who want to enter the market but avoid catching a falling knife, watch these key signals:

The Taiwan stock index corrected from its historical high of 48,218 points. The decline in margin debt was smaller than the broader market drop. Monitor whether margin debt begins to decrease rapidly, catching up to or even exceeding the market's decline.

In 2025, due to the Trump administration's tariff war, margin maintenance rates dropped to an extreme low of around 118%. Historically, when maintenance rates fall below 130%–120%, it has marked a bottoming opportunity.

On April 7, 2025, the tariff storm caused about 1,776 stocks to hit the daily trading limit down. On March 12, 2020, pandemic panic caused nearly 300 stocks to limit down. Today, nearly 200 stocks in Taiwan hit limit down. Margin calls and 'bull-on-bull' trampling often cause over 100 stocks to limit down, but whether a long lower shadow or a green candlestick appears afterward signals low-level position rotation.

Of course, the main reason for this correction in the Taiwan market is its sensitivity to the Korean market and the Philadelphia Semiconductor Index (SOX). When these two stabilize will affect the confidence of international and local investors. Investors should avoid blindly catching the bottom and refrain from leveraged trading. The market will always be there. To become a long-term winner, disciplined trading is even more important.

More industry trend forecasts and real-time market updates are available at Professor Yeh's LINE@:

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Source: Moore Investment Consulting – Analyst Yeh Chun-Min

The securities recommended and analyzed by our company have no improper financial interests. Past performance does not guarantee future profits. Investors should make independent judgments, conduct careful evaluations, and bear investment risks on their own.