Analogy to the Chinese internet in 2020-21, HSBC states: Another new trend has emerged, Asian AI stocks hit their peak.

On September 20th, HSBC released its latest research report, stating that Asian AI stocks are going through an adjustment similar to the Chinese internet stocks in 2020-2021. According to the HSBC report, since July 2024, the prices of AI-related stocks in Asia have significantly dropped, with their custom Asian AI index falling 15% from its high on July 11th. This correction has become the most severe sell-off that the sector has experienced since the release of ChatGPT in 2022. The report mentioned that with the rapid decline in prices of AI-related stocks, market optimism towards the AI sector is changing, with target prices and profit expectations gradually being revised downwards. HSBC analysts believe that Asian AI stocks may have peaked and are entering a new adjustment phase. The report specifically highlighted three major challenges facing the Asian AI market: weak demand, regulatory pressure, and downward profit expectations, with the "downward profit expectations" being a factor that has only recently started to play a role. Similar to Chinese internet stocks in 2020-2021, HSBC pointed out in the report that signals of downward profit expectations and target price adjustments have started to appear. The report indicated that recent financial reports from Mag7 and subsequent stock price trends have shown a shift in investor sentiment. While most financial reports did not have major surprises, the stock prices of these companies reacted negatively after the financial results were announced. This impact has extended to the Asian technology industry. Although the majority of AI stocks still maintain a positive rating, with 89% of AI stocks currently rated as "buy," analysts are starting to adopt a cautious attitude towards their profit prospects. Adjustments to target prices since the beginning of this year have been completed. Since July, target prices have fallen by 2%. As some target prices are benchmarked against the entire industry, we suspect that these figures may see a significant decline in the coming weeks. HSBC stated that similar to the performance of Chinese internet stocks after the peak in 2020-2021, Asian AI stocks are also going through a "lagging adjustment." Profit forecasts have also peaked. Profit forecasts have been slightly lowered. This trend (analysts lowering forecasts two months after stock prices peak) is very similar to what we saw in Chinese internet stocks in 2020-2021. This suggests that further adjustments in the AI sector may only be a matter of time. The timing of when the massive investments in AI will pay off is still unknown. HSBC believes that although tech giants are increasing their investments in AI infrastructure, there is skepticism in the market about how these investments will actual returns. NVIDIA Corporation's CEO Jensen Huang had previously predicted that global investment in AI infrastructure construction would reach $1 trillion in the next 4 to 5 years, but current market demand has not caught up with such a large-scale investment. Large tech companies continue to invest heavily in strengthening infrastructure, far exceeding the actual demand that has yet to come. According to their latest data, in the second quarter of 2024, the average capital expenditure of Mag7 increased by 50% year-on-year. Some wonder how these investments will be monetized. Is there enough demand to ensure such huge investments? Regulatory risks for AI are highlighted Finally, HSBC believes that the main regulatory risks that AI may face in the future are related to the power consumption of AI data centers. Stricter data privacy and AI industry regulations have been introduced in Europe and other regions. The US has also launched an antitrust investigation into NVIDIA Corporation. The report also pointed out that the huge power consumption of AI data centers may bring more regulatory risks in the future. For example, the energy consumption of one search by ChatGPT is 10 times that of Alphabet Inc. Class C search. In addition, the report pointed out that the excessive concentration of funds in the AI field has also raised concerns in the market. HSBC stated that due to overvaluation and risk exposure, the company will maintain a low allocation to the Chinese Taiwan market. This article is a translation from "Wall Street View," written by Zhang Yaqi; GMTEight Editor: Jiang Yuanhua.