GF Securities of Hong Kong said in its August technology stock monthly report that the correction in AI-related equities seen in July is approaching its end. The brokerage said the Philadelphia Semiconductor Index, or SOX, has retreated to 27x forward price-to-earnings, easing valuation pressure, while market positioning has become cleaner, leaving room for a rebound to extend into the third quarter.
The firm also updated its stock picks, adding Advanced Micro Devices (AMD), Foxconn (2317) and Lumentum (LITE), and removing United Microelectronics (2303) and MediaTek (2454). It said supply-chain capital is shifting from memory to optical components, and that the co-packaged optics, or CPO, theme could even beat market expectations in the fourth quarter.
GF Securities says July may have marked the late stage of the pullback
The report described July as an especially difficult month for technology investors. It said SOX performance relative to the S&P 500 marked the worst reading since 2012. Even so, analysts at the firm argued that the worst period has likely passed for three reasons.
- SOX valuations have corrected from prior highs to 27x forward P/E, which has eased valuation pressure.
- Crowded and leveraged market positions have largely been cleared.
- Hyperscalers including Microsoft, Google and Meta continue to express confidence in the return on investment from AI capital spending, improving market sentiment.
The report added that because many investors still see the current move as a short-lived technical rebound, the rally may last longer than expected. GF Securities kept its view for August and the broader third quarter as a shift from consolidation to a longer-cycle rebound. It also said sector performance is not uniform, and that some AI semiconductor stocks are already showing signs of peaking. Its preferred exposure remains concentrated in GPU, CPU and optics.
AMD, Foxconn and Lumentum were added to the preferred list
On stock selection, GF Securities said AMD represents the core CPU and GPU computing theme. Foxconn stands to benefit directly from growth in AI server manufacturing demand. Lumentum represents the optical component and CPO investment theme. Semtech (SMTC), meanwhile, was identified as a major beneficiary in silicon photonics and near-packaged optics, or NPO.
The brokerage removed United Microelectronics, MediaTek and ASML from its list. It said the three companies are tied mainly to mature-node foundry services, smartphone application processors and front-end lithography equipment. In the firm’s view, those businesses are less aligned with the AI compute and optical themes it currently favors, and their near-term outlook is more cautious.
Cloud spending outlook stays strong even as growth is expected to slow in 2028
GF Securities also reiterated a positive outlook for capital spending by U.S. cloud service providers. It forecast that CSP capex will rise 85% year over year in 2026, stay at a high 45% in 2027, and then slow to about 20% in 2028.
According to the report, that 2028 slowdown would reflect a natural transition rather than a collapse in demand. By then, cloud companies are expected to shift attention from aggressive expansion toward returns on investment and the competitive structure around large language models.
The report estimated U.S. CSP debt issuance at about $257 billion in 2026 and $419 billion in 2027. Even with that funding pace, net leverage is expected to remain around 0.5x through 2029, while net debt to equity is projected at about 18%. GF Securities said those figures suggest that large cloud providers can keep investing heavily while maintaining solid balance sheets.
It also noted that emerging cloud providers such as CoreWeave continue to spend aggressively, making them a second demand engine in the current AI capex cycle.
Focus shifts from HBM to optical interconnects as NVL576 adoption rises
The firm said the investment focus in the supply chain is moving from memory components such as high-bandwidth memory, or HBM, toward optical interconnects as adoption of Nvidia’s 2027 NVL576 rack solution continues to rise.
In NPO, the report named Semtech and Marvell (MRVL) as beneficiaries. In CPO, it said the market has already gone through an expectation reset during the correction, leaving a cleaner base. If CPO volume production stays on schedule in the fourth quarter, or arrives earlier than expected, GF Securities said it could act as a positive catalyst for consensus expectations. The main names it listed were Lumentum, Coherent (COHR), Corning (GLW) and Taiwanese supplier Broadradio (3163).
Risks remain in smartphones and NAND
GF Securities did not take a bullish view on every part of the sector. It kept a cautious near-term stance on smartphones, with Qualcomm (QCOM), Apple (AAPL) and Xiaomi placed on its watch list. Copper foil demand was also described as weak, with no clear short-term catalyst.
In memory, the report said research points to NAND flash oversupply gradually emerging in the second half of 2027, and analysts remain cautious on that segment. It also cited application-layer AI data showing that Anthropic’s annual recurring revenue had reached about $73 billion by mid-July, indicating monetization is still accelerating. At the same time, the report said competition in large language models could become a medium- to long-term constraint on how cloud providers allocate capital.
Outside those areas, GF Securities maintained a positive stance on supporting supply-chain segments including testing, ABF substrates and power management ICs.