BOC International: The conditions for the hard technology sector in A-shares to transition from an oversold recovery to a trending market are accelerating in maturity.

Market Hotspot Reflections The hard technology sector, represented by the STAR 50 index, is transitioning from a period of significant corrections to a trending market phase. Throughout the cycle from mid-June to mid-August, the trajectory of hard technology can be described at two levels. The first level is the index level, where the STAR 50 index, a representative of hard technology, reached a peak closing of 2207.86 points on June 30 before undergoing a deep pullback, dropping approximately 25.9% throughout July, and hitting a low closing point of 1552.89 on August 3. Following this, a rebound began, with the index closing at 1717.68 points on August 14, slightly below the 20-day moving average but reflecting a cumulative rebound of 10.6% from the low. The index has effectively exited the extreme sell-off zone, with a clear repair of the low points and an uplift in the rebound center. The second level encompasses the industry perspective, where Shenwans electronics and communications sectors experienced declines of approximately 34.7% and 31.9% in July, respectively, becoming heavily impacted by the prior round of polarized valuation digestion and overseas narrative disturbances. As of August 14, the cumulative increases for August reached about 13.2% and 15.3%, with both sectors closing above the 20-day moving average again. The rapid rebounds in these two benchmark industries signify the establishment of a short-term recovery pattern. In terms of trading volume, the STAR 50 index first dropped below one trillion on August 14; if the hard technology market is merely a weak repair influenced by leveraged and thematic funds, it will be challenging for the market to coexist with a backdrop of declining volume. Therefore, we assess that the trend-following funds and industrial capital, which emerged after the panic sell-off, are gradually gaining dominance, with funding behaviors increasingly reflecting a refined focus on genuine value. Overseas cloud earnings reports validate and solidify AI fundamentals. From the end of July to early August, major cloud service providers like Microsoft and Amazon reported their second-quarter (and corresponding fiscal quarter) performance results. On the cloud side, both sentiment and spending were revised upwards; Microsoft Azure saw a revenue surge of 43% in the last quarter, marking its highest growth rate in four years, with the company projecting that growth will further accelerate to approximately 45% next quarter. The quarterly capital expenditure, targeting investments in data centers and long-term fixed assets, reached around $41 billion, a 70% increase. Amazon AWS's quarterly revenue approached $42.2 billion, a year-on-year increase of about 36.7%, achieving the fastest growth rate over 18 quarters since 2021, with operating profit margins leading among the three major cloud providers. The companys annual capital expenditures are expected to accelerate even further, guiding an increase from $200 billion to $220 billion. Smaller cloud and compute rental services have become more flexible observation windows, with CoreWeave and Nebius releasing their Q2 reports around August 12, both exceeding expectations. CoreWeave has repeatedly expanded its long-term compute cooperation with OpenAI this year, recently entering into its third rental cooperation agreement with OpenAI, providing computing power for the training of next-generation advanced models, with the contract potentially valued at up to $6.5 billion. The cumulative contract scale this year could reach approximately $22.4 billion, with equity arrangements deepening the ties, effectively locking in computing power demand through long-term orders. Nebius (NBIS), a significant entity in the U.S. stock market for compute leasing, has disclosed approximately 9.3% equity from NVIDIA; the company had also previously secured about $2 billion in cooperation investment from NVIDIA and established long-term computing agreements with Meta totaling up to $12 billion. Overall, the favorable earnings disclosures from various cloud companies have further solidified the logical chain from AI orders to capital expenditures finally converting to revenue, accelerating the maturity of the narrative around AI infrastructure transitioning from a rebound thematic trading to aligning with the upward main line of capital expenditure. Looking ahead, the intensive disclosure of A-share mid-term reports in mid to late August still serves as a point of variation. If core tracks like computing power, storage, and optical modules can continuously confirm demand, providing revenue and order evidence that aligns with valuations, the hard technology market can smoothly position itself within the overarching main line, and the STAR 50 is expected to stabilize at the August rebound high and the more significant previous high area. Based on preliminary report forecasts, although the disclosure rate remains low at less than 20%, we observe from a directional scanning perspective that the electronic and communication samples show sufficient representation and that median profit growth predictions rank among the top five across all industries. The non-ferrous resources sector, an upstream player in AI hardware, ranks first among all industries with a disclosure rate exceeding 10%. Therefore, we believe that the current pricing of hard technology is not merely a technical rebound following significant corrections; advantages in earnings quality and sentiment (if further confirmed by actual mid-term data) may support the sector's transition from rebound to reversal. Meanwhile, the actual performance of consumer discretionary star companies represented by Moutai is further under pressure; the performance advantages of hard technology relative to other sectors are expected to become more pronounced. Recently, both Huijin and State-owned Assets Supervision and Administration Commission exited the top ten shareholders of Moutai, indicating potential reallocations of substantial funds that may enhance the subsequent space for hard technology. Anthropic's pre-IPO phase is likely to form an external option for hard technology sentiment. Reports indicate that Anthropic plans to go public in October 2026, with investors estimating its IPO valuation could reach $2 trillion or more, potentially making it the largest IPO in history. By the end of 2026, Anthropic's annualized revenue run rate is expected to reach between $100 billion and $120 billion. Currently, there are no comparable publicly listed AI companies in the U.S. market, making it difficult to set a fair benchmark for valuing Anthropic. Before formal pricing, the market's optimistic narrative surrounding the commercialization of cutting-edge models and the spillover of computing power is often more easily sustained, constituting an external option for hard technology sentiment. Conversely, if the IPO pricing falls short of expectations, it could pose a symmetrical risk. Summarizing overseas signals: Small and large cloud earnings reports fulfill expectations the ROI of AI infrastructure is validated the upward capital expenditure cycle is recognized. Combined with neocloud long-term contracts and the preheating phase for Anthropics IPO, this represents the strongest external support for A-share hard technology. The conditions for transitioning from significant corrections to trending markets are maturing rapidly, and core targets in A-share electronics and communications are expected to benefit from this renewed elasticity. Weekly Data Highlights This week, major global stock indices showed consolidated fluctuations, while Brent crude oil prices rebounded. The current gold-to-oil ratio stands at 47.61, down 35.2% from this cycle's peak and recovering 49.2% from the low point on April 7. The BOCI sentiment index's slow line is recovering from the bottom, while the fast line is rebounding close to a short-term high. This week, the net capital inflow in the A-share market reached 2.789 billion yuan, marking the fourth consecutive week of net purchases, although the inflow size decreased by 189.539 billion yuan compared to the previous week. Specifically, the most attractive industries for market funds this week were communications, with a net inflow of 28.903 billion yuan; the second and third places went to pharmaceuticals and machinery, with net inflows of 14.834 billion yuan and 6.246 billion yuan, respectively. The three industries with the largest net outflows were non-ferrous metals, non-banking financial, and basic chemicals. This week, net redemptions of stock ETFs totaled 36.329 billion yuan, marking the second consecutive week of net redemptions, which decreased by 32.676 billion yuan compared to the previous week. Among the ETFs with the largest increases in shares, the top five were: Huatai-PB SSE STAR Market Semiconductor Materials Equipment Theme ETF, Penghua SSE STAR Market Semiconductor Materials Equipment Theme ETF, Guotai Zhongzhi Semiconductor Materials Equipment Theme ETF, E Fund Zhongzhi Semiconductor Materials Equipment Theme ETF, and Guotai Zhongzhi All Index Securities Company ETF; the five ETFs with the most significant decreases were Huatai-PB CSI 300 ETF, Southern CSI 1000 ETF, Huaxia CSI 1000 ETF, E Fund ChiNext ETF, and Southern CSI 500 ETF. Risk Warning 1) Unexpected escalation of geopolitical conflicts or long-term blockade of the Strait of Hormuz; 2) Unexpected resilience of inflation sparked by oil prices; 3) Uncertainty regarding the duration and scope of conflicts; 4) Unexpected overseas liquidity risks; 5) Domestic economic recovery pace may not meet expectations. This article is compiled from Taipingqiao Strategy Essays, GMTEight, edited by Chen Yufeng.