AI Trade Deleverages, Leaving Hidden Risks Behind

The AI trade has seen its speculative leverage unwind, leading to lower volatility in semiconductor stocks. However, this de-leveraging may not be evenly distributed among all participants, as major AI players like Alphabet (GOOGL) and NVIDIA (NVDA) have continued to accumulate debt.

This hidden systemic risk is reminiscent of the Dot.com era, where companies with high levels of leverage ultimately led to market crashes. Memory players like Micron, Sandisk, and SK Hynix are benefiting from AI-driven shortages, but their long-term contracts will temper their future upside and momentum.

Another concern is the emergence of new supply capacity in China, which is expected to come online as soon as 2027-2028. This could rebalance memory supply/demand and affect conventional NAND and DRAM pricing.