As artificial intelligence (AI) stocks led gains on Wall Street this year following last year, first-half returns by sector diverged sharply, drawing attention. In particular, in the first half of this year, the so-called "Magnificent 7 (M7)" — Nvidia, Alphabet, Apple, Microsoft (MS), Meta, Amazon and Tesla — which had been regarded as market leaders through last year while spending astronomical sums, saw their returns plunge. Meanwhile, Wall Street's big money flowed into semiconductor stocks, centered on memory. This means investor sentiment is sharply differentiating between companies pouring astronomical funds into building data centers, even by taking on debt, and companies that are generating immediate earnings from the AI investment boom.
For the six months through June 30 this year, the Dow Jones Industrial Average rose 8.9 percent, the Standard & Poor's (S&P) 500 gained 9.6 percent, and the Nasdaq Composite climbed 12.8 percent. According to The Wall Street Journal (WSJ), the S&P 500 and the Nasdaq rose 15 percent and 21 percent respectively in the second quarter alone, both recording their highest quarterly gains in six years since the second quarter of 2020. The Dow also posted its highest half-year gain in five years since the first half of 2021. The small- and mid-cap Russell 2000 also jumped 21.9 percent, its best first-half performance since 1991.
Above all, the sector that drove Wall Street in the first half was semiconductors. Amid a combination of surging demand from the frenzy of investment in AI infrastructure and a shortage of memory chips, listed companies whose stock prices rose two to ten times over the six months emerged one after another, including Micron (301.5 percent) and SanDisk (857.8 percent). The Philadelphia Semiconductor Index rose a whopping 101.1 percent in the first half of this year alone, its best half-year performance since the "dot-com bubble" of 1999 (the internet industry bubble of the mid-to-late 1990s). Given that the first-half gain of the Philadelphia Semiconductor Index reached about 10 times that of the Dow, Nasdaq and S&P, it is no exaggeration to say that semiconductor-related stocks in effect led the overall rise on Wall Street during this period.
Unlike semiconductors, the M7 stocks that had dominated Wall Street through last year could not escape a slump this year. According to the Financial Times (FT), M7 shares fell about 10 percent on average over nearly a month from the start of June through June 29. This was the largest monthly decline in more than a year. The combined market capitalization of these seven stocks also evaporated by 2.3 trillion dollars (about 3,560 trillion won) over the same period. This came as skepticism grew over the profit-generating capabilities of hyperscalers (mega-scale cloud operators) such as Amazon, MS, Alphabet, Meta and Oracle after they poured large-scale funds into building AI data centers. The combined capital expenditure (CAPEX) plans announced this year by these five major hyperscalers alone amount to about 750 billion dollars (about 1,155 trillion won).
The surge in demand for AI infrastructure such as data centers, which has driven up prices of semiconductors including memory, also became a factor dividing the direction of share prices between AI model, platform and cloud operators and chip manufacturers. While semiconductor companies enjoy a super cycle (period of exceptional boom), the remaining AI companies are struggling under the burden of rising raw material prices. The FT analyzed that companies such as Walmart and Uber are limiting their use of AI tools due to cost issues, which is also bad news for hyperscalers. If companies increase their adoption of lightweight, low-cost AI models and reduce their purchases, the outlook for hyperscalers to recoup their investments will inevitably become uncertain.
The dominance of semiconductors on Wall Street in the first half is not much different from the Korean stock market. According to the Korea Exchange on Tuesday, the KOSPI rose 101.14 percent, from 4,214.17 at the end of last year to 8,476.48 on June 30. In particular, Samsung Electronics and SK hynix, the first- and second-largest companies by market capitalization, surged 178.57 percent and 307.07 percent respectively, jointly driving the index higher. The combined market capitalization of the two companies surged by 2,658 trillion won in the first half alone, exceeding half of the entire KOSPI.
The top three exchange-traded fund (ETF) returns were also swept by semiconductor leverage products, including Mirae Asset Global Investments' "TIGER 200IT" and "TIGER Semiconductor TOP10 Leverage," and Samsung Asset Management's "KODEX Semiconductor Leverage." In particular, the single-stock leverage ETFs for Samsung Electronics and SK hynix, launched on May 27, even affected Wall Street on the back of their tremendous volatility.
