Following a recent strong rally, the U.S. stock market was subdued on Monday, with the S&P 500 index retreating slightly after hitting a record high as investors adopted a cautious stance ahead of a "critical data week." The market is currently grappling with mixed signals: on one hand, there is a recalibration of corporate earnings expectations, while on the other, an escalating memory chip supply crisis is reshaping the landscape of winners and losers within the tech sector, casting a shadow over overall market sentiment. As the new earnings season moves into a deeper phase, supply chain constraints, particularly the soaring prices of memory chips, have moved from backroom discussions to the forefront, becoming a frequent topic in numerous corporate earnings calls. This cost pressure is spreading across a wide range of industries from consumer electronics to automotive manufacturing, directly threatening corporate profit margins. Market participants are attempting to assess the duration of this supply bottleneck and its long-term impact on inflation and corporate earnings. This uncertainty has led traders to hit the "pause button" ahead of the release of key economic data. Concurrently, a sharp divergence in stock performance is emerging between memory chip manufacturers and downstream consumer electronics giants. Although the S&P 500 index overall remains stable, this "super cycle" within the niche sector is triggering a reallocation of capital. Funds are rapidly shifting from hardware manufacturers facing profit margin squeezes to chip suppliers who hold pricing power. This structural rotation of capital underscores the market's high focus on supply chain resilience and also signals that future volatility may intensify. Current market valuations have, to some extent, priced in expectations that supply tightness will ease in the short term. However, as more industry giants issue warnings, this optimism is being challenged. Investors are closely watching macroeconomic data scheduled for release this week, along with earnings reports from companies such as Datadog and Cloudflare, seeking further clues about the health of demand and the ability to pass on costs. This will largely determine the subsequent direction of U.S. stocks.

The gap between winners and losers is widening. The relentless rise in memory chip prices over the past few months has drawn a clear line in the stock market. Since the end of September, a Bloomberg index tracking global consumer electronics manufacturers has fallen by 10%, while a basket including memory makers like Samsung Electronics has surged approximately 160%. A range of companies, from game console maker Nintendo to major PC brands and suppliers to Apple, have seen their stock prices battered by concerns over profitability. In contrast, memory producers have climbed to unprecedented highs. Fund managers and analysts are assessing which companies can best navigate this squeeze by securing supply, raising product prices, or redesigning products to use less memory. Vivian Pai, a fund manager at Fidelity International, pointed out that the underestimated risk currently is the duration; present valuations largely assume this disruption will normalize over the next quarter or two. However, the institution believes industry supply tightness could persist, potentially throughout the entire year.

Corporate warnings are frequent, with PC manufacturers hit hard. Memory shortages and pricing issues are frequently appearing in corporate earnings reports and conference calls. Honda Motor noted on Tuesday that supply risks for memory components are emerging. Qualcomm's stock fell over 8% last Thursday after the smartphone processor maker suggested memory constraints would hinder handset production. Nintendo's stock in Tokyo fell the most in 18 months the day after it warned of margin pressure from shortages. PC makers have been hit the hardest. Both Lenovo and Dell are down more than 25% from their peaks last October. Concerns that higher chip prices will dampen PC demand have also spread to Swiss peripherals maker Logitech, whose stock is down nearly 30% from its November peak.

An AI-driven "super cycle." Charu Chanana, Chief Investment Strategist at Saxo, stated that memory prices have become the headline of this earnings season. While the market generally understands supply is tight, the timeline for this tightness is beginning to be questioned. These concerns are not limited to demand and earnings but are exacerbated by massive spending on AI infrastructure by U.S. hyperscalers, which will further worsen the memory chip shortage. Massive AI infrastructure builds, led by companies like Amazon.com Inc., have shifted capacity away from traditional DRAM towards high-bandwidth memory. This has led to what some describe as a "super cycle," breaking the usual boom-and-bust pattern of memory supply and demand. Even though demand for end products like smartphones and cars remains weak, spot prices for DRAM have surged over 600% in the past few months. Furthermore, AI is creating new demand for NAND chips and other storage products, driving up costs in these segments. Against this backdrop, memory chip manufacturers have become the winners in the tech stock arena. SK Hynix, a key supplier of high-bandwidth memory to NVIDIA, has seen its stock in Seoul rise over 150% since the end of September. In Japan, Kioxia and Taiwan's Nanya Technology have each gained over 270% during this period, while Western Digital's stock in New York has surged over 400%. Jian Shi Cortesi, a fund manager at GAM Investment Management, noted that the current cycle has already exceeded previous ones in both length and magnitude, and there are no signs yet of the demand momentum weakening.