China International Capital Corporation, or CICC, said the global AI token market has been in a notable pullback since mid-to-late June, with South Korea seeing the sharpest moves because of what it described as high leverage, crowded positioning, and heavy retail participation. The firm said the correction has been amplified by those market structure issues, while also being pressured by macro factors such as firmer expectations for Federal Reserve rate hikes and higher oil prices linked to the renewed closure of the Strait of Hormuz. It also pointed to revived bubble concerns around AI, citing examples including Meta renting out computing power and declining token spending.
CICC compared the current downturn with the run-up to the bursting of the dot-com bubble in March 2000, noting that the tech rally then also went through at least four relatively large and lengthy pullbacks before the final break. In its view, the triggers are highly similar: short-term disruptions to the industry trend, macro headwinds, and overheated valuation sentiment. For the market to stabilize now, and possibly start another leg higher, CICC said three conditions need to align: crowded and leveraged positions must continue to unwind, expectations for Fed rate hikes need to ease or be settled, with the July FOMC meeting as a key point to watch, and new earnings or industry catalysts need to emerge during the July-August reporting season.
According to Odaily, research from China International Capital Corporation (CICC) said the global AI token market has seen a clear pullback since mid-to-late June, with South Korea experiencing the most severe decline because of what it described as high leverage, crowded positioning, and heavy retail participation.
CICC said the correction has been amplified by crowded trades and leverage. It also pointed to macro disruptions, including rising expectations for Federal Reserve rate hikes and higher oil prices after the renewed closure of the Strait of Hormuz. At the same time, the market has revived concerns that AI may be entering another bubble phase at this stage, with examples cited including Meta renting out computing power and declining token spending.
CICC draws a parallel with the 2000 tech cycle
The firm said that before the dot-com bubble finally burst in March 2000, the technology rally had already gone through at least four relatively large and prolonged pullbacks. In CICC's view, the triggers behind those declines are highly similar to the current adjustment: short-term setbacks in the industry trend, macro headwinds, and overheated valuation sentiment.
CICC added that technology stocks were able to rebound later because pressure from those three areas eased.
What CICC says the market needs now
Applied to the current market, CICC said stabilization, and even the start of another uptrend, would also require those three factors to move in the right direction together. First, crowded positioning and leverage need to be digested, which the report said has largely been achieved. Second, expectations for Fed rate hikes need to ease, or the uncertainty needs to be settled, with the July Federal Open Market Committee (FOMC) meeting as a key event to watch. Third, and more importantly, the market needs fresh catalysts from earnings and industry developments during the July-August earnings season.
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