AI Stock Correction Driven By Sentiment Not Earnings Fundamentals, Says Roundhill

Question

We've seen these corrections in the Kospi and in these individual names before, but the question is: Is this time different? Because it comes on the back of debt mounting at some of the companies, not all, and also an unprecedented increase in the kind of interest rates we've seen in the US. Is this time different?

Answer:

Right now, a couple of things are different. Number one, I think the narrative's different. So, when we think about a lot of these tech names, especially around memory and the infrastructure build-out, people were talking about short-term pricing power. That was a reason to get into these trades. The reason to stay in these trades is the longer-term durability of earnings. So, people are now questioning that, and it's harder to prove out in real time that this isn't a commodity-like industry anymore. Instead, it is more driven by long-term supply contracts and so on. So, the narrative's changing, and when the narrative is changing, people sell first and ask questions later. So that's what's changing. What's not changing is the earnings revisions in the near term. Earnings momentum is still really strong here. We have a lot of exposure in the memory space at Roundhill, and this is a place where we feel a little bit uneasy in the short term, but we do think the longer-term earnings trends and the supply bottleneck will continue to exist.