Is the easy phase of the semiconductor trade coming to an end? This week's tech stocks wobble suggests it might be. For much of this cycle, simply owning the sector was enough, but it's getting hard to see how that still holds.
We are seeing more signs that the memory-supply squeeze which has underpinned much of the recent rally is starting to ease somewhat, with Chinese producers coming back online as competitive suppliers. Even the biggest chip bulls seem to now accept that token pricing power is fading.
Whether this is second-half jitters after a phenomenal run or something closer to a peak will depend on what the large technology companies say over the coming days during second quarter earnings calls. Either way, the scale of the market moves already tells us two things: how much leverage and short-term money had gathered in these names, and how much the market has begun to worry about the systemic risk in betting, with borrowed money, that the AI trade is a one-way street.
Where are the next AI opportunities?
Nothing moves in a straight line, whatever the spreadsheets extrapolating linear growth might suggest. For us, the opportunity set is now broadening beyond the AI enablers (the chipmakers) towards the builders and the beneficiaries, those companies constructing the next layer of the stack, and those that will profit from using it.
As we noted in our latest outlook on the technology sector last week, the AI trade has moved from a broad thematic rally into something far more tactical. We flagged the momentum in Korea as one of the market's more stretched corners, and this week is a reminder of why.
At the heart of our view for the remainder of the year is a shift from owning the theme to picking within it, as we have seen the market start to discriminate between winners and losers across the technology stack. Capital is rotating quickly through whichever part of the chain is tightest, from graphics processors to memory, then optics and, most recently, wafer capacity.
Semis: the key risks to the sector
On semiconductors, we make the point that this is the bubble everyone can see and no one wants to leave. Investors may recognise the gap between chip valuations and the cash flows further down the chain, but selling early risks material underperformance, so the temptation is to stay invested. This makes for a fragile foundation, which partially explains volatile moves when sentiment shifts.
We see the sector facing two potential key risks. The first is concentration: much of the big cloud providers' spending now rests on promises from a small number of private model companies, leaving the whole infrastructure layer exposed if AI monetisation is delayed.
Figure 1. OpenAI and Anthropic spending commitments versus cloud provider revenue backlog
Source: Company filings as at 30 April 2026.
Problems loading this infographic? - Please click here
The second is China, whose role we think is still underpriced. It has closed much of its gap in chip manufacturing and, more tellingly, moved into the model layer, where domestic open-source systems compete hard on cost. For high-volume workloads, the case for using them has been strengthening.
Figure 2: Token usage by source type
Source: Openrouter, as at 26 June 2026.
Problems loading this infographic? - Please click here
The IPO pipeline
Our paper also highlights how technology cycles tend to monetise in waves. First, it’s the semiconductors, then infrastructure and the builders, and finally the software and services on top. The first wave of AI value went overwhelmingly to the chipmakers; the second is now reaching the builders, the hyperscalers and model companies, several of which are expected to list over the next 12 months.
We see opportunities in the IPO pipeline, but the key question is what happens in the six months after the companies go public. As in 2000, it tends not to be the listings that break a market but subsequent lock-up expiries, when early investors sell to redeploy into the next cycle. That same clock is now ticking, with the pressure point likely hitting in 2027.
Parting thoughts
As long as the music is playing, no one wants to stop dancing, and everyone in the room knows it will stop, even if no one can say when. Conviction has to sit alongside humility. The sensible response is not to leave the floor but to dance closer to the door, e.g. to move from broad exposure towards more selective positioning, and to watch where in the chain the money is actually being made rather than just promised.
All data Bloomberg, unless otherwise stated.
Author: Sumant Wahi, a portfolio manager at Man Group focused on technology equities.
You are now leaving Man Group’s website
You are leaving Man Group’s website and entering a third-party website that is not controlled, maintained, or monitored by Man Group. Man Group is not responsible for the content or availability of the third-party website. By leaving Man Group’s website, you will be subject to the third-party website’s terms, policies and/or notices, including those related to privacy and security, as applicable.