CICC: AI Pullback Highly Similar to Four Major Drawdowns in 2000

CICC Research points out that since mid to late June, there has been a significant pullback in the global AI sector, particularly severe in the South Korean market, mainly due to high leverage, high crowding, and a high number of retail investors. This pullback has been influenced by macro factors, including rising expectations for interest rate hikes by the Federal Reserve and the blockade of the Strait of Hormuz driving up oil prices, while concerns about an AI bubble have intensified. Looking back at the four major drawdowns the market experienced before the tech bubble burst in March 2000, the reasons were similar to the current situation: short-term fluctuations in industry trends, headwinds in the macro environment, and overheated valuation sentiment. The rebound of tech stocks relies on alleviating these three pressures. The current market stabilization and the next round of increases require digesting high crowding and high leverage, easing expectations for Federal Reserve interest rate hikes, and anticipating new catalysts from the earnings season in July and August.

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