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Earned 439% in half a year, lost 67% in one month, and was eventually forced to sell most of the stocks to Citadel. This is what happened to the fund Situational Awareness, managed by former OpenAI researcher Leopold Aschenbrenner, in 2026. Leopold is definitely not someone lacking investment ability. He graduated from Columbia University at 19 as a student representative and later joined OpenAI to conduct AI research. He was an early believer in AI infrastructure, heavily invested in companies like $SNDK, $MU, $BE, $CRWV, and at one point achieved extremely impressive investment returns. According to public reports, the fund rose 439% cumulatively in the first half of 2026, but in July it faced a concentrated decline in AI stocks, losing about 67% in a single month. Due to margin calls on leveraged positions, it was ultimately forced to sell most of its publicly traded stocks to Citadel and voluntarily deleverage. The most valuable lesson here is not that he misjudged AI, but that even with a correct long-term view, leverage can cause you to lose the qualification to continue holding. Assuming an initial $1 million, a 439% increase in the first half would grow assets to $5.39 million. Then a 67% loss leaves about $1.78 million. Although still up about 78% for the year, most of the previously accumulated profits have disappeared. Even harsher, to get back from $1.78 million to $5.39 million requires about a 203% gain, not 67%. Leverage further amplifies this asymmetry. Assuming 3x leverage to buy stocks, a 10% drop in the underlying would theoretically cause about a 30% loss of principal; a 20% drop would cause about a 60% loss. If the decline continues and margin requirements are not met, forced liquidation may occur. Actual results are also affected by borrowing interest, margin rules, and price gaps. Investors without financing leverage can decide when to sell on their own as long as they have no other financial pressures. Even if $MU and $SNDK drop 30% in the short term, as long as the company's long-term fundamentals remain unchanged, they can choose to hold on and wait for future valuation recovery. Of course, waiting does not guarantee a return. But at least you won’t be forced to liquidate at the worst possible time due to broker margin requirements. Options work similarly. In September, reports indicated that Leopold’s fund re-engaged in options trading on $AMD, $BE, $CRWV, $SNDK, with related large option purchases involving about $315 million in premiums. Buying options can limit the maximum loss per trade to the premium paid, but if the amount invested is too large, time decay and changes in implied volatility can still cause severe losses. Buying the right direction but the wrong expiration date can also result in losing the entire premium. Especially for short-term options, the stock ultimately rising does not mean your contract will still be valid by then. After experiencing significant market volatility, I increasingly prefer to separate stock holdings from leveraged trading. For companies with genuine long-term potential, control position size and hold the underlying stock; for high-risk options, determine the maximum tolerable loss in advance rather than relying on adding positions to wait for a rebound. The market never lacks opportunities, and AI, semiconductor, and storage industries may continue to grow in the future. But if a single extreme event can cause unbearable principal losses, no subsequent big rally matters. The most important thing in investing is not how many times you make money in a single year, but whether you can stay in the market after several bull and bear cycles. Even fund managers managing tens of billions of dollars with professional research capabilities can be forced by leverage to sell stocks they believe in long-term. Ordinary investors have even less need to prove their judgment through high leverage. If the investment logic can be achieved with the underlying stock, there is no need to use leverage to do so.

On October 19, the US semiconductor market finally saw a significant rebound, with $MU and $SNDK leading the storage sector, and the Philadelphia Semiconductor Index rising more than 2% intraday. So, will the Asia-Pacific market follow suit on October 20? Especially for Samsung, SK Hynix, and Japan's Kioxia, which previously experienced historic-level crashes—can they reignite the global storage market? $SOXX $QQQ $MU $SNDK Let's first look at the South Korean market. On October 19, the Korean KOSPI fell more than 3% in early trading but ultimately reversed to close up 1.76%. Samsung Electronics closed up 1.16%, and SK Hynix rose 0.39%. This rebound indeed sent a positive signal, but it is important to note that the two major Korean storage leaders actually underperformed the KOSPI index that day and did not show a very strong leading rally. Why is the rebound strength of Korean storage stocks still limited? Because the prior sell-off was extremely severe. From October 12 to 16, Samsung Electronics dropped a cumulative 17.8%, and SK Hynix plummeted 24.3%, both marking the worst weekly declines since the 2008 financial crisis. Foreign investors net sold about 11.2 trillion KRW worth of Korean stocks in one week, with Samsung and SK Hynix accounting for approximately 8.8 trillion KRW of net sales, nearly 79% of the total foreign net selling. More notably, although SK Hynix closed up on October 19, foreign investors still net sold about 217.6 billion KRW. Samsung, on the other hand, saw about 172 billion KRW in foreign net buying that day. This indicates that bottom-fishing funds have appeared in the Korean storage sector, but it cannot yet be confirmed that the large-scale foreign capital outflow has fully reversed. Now, looking at October 20. If the US stock market maintains its current rebound on October 19, with $MU, $SNDK, and the Philadelphia Semiconductor Index closing strongly, the conditions for continued recovery in South Korea, Japan, and Taiwan on the 20th will significantly improve. In South Korea, SK Hynix and Samsung Electronics may benefit from the sentiment recovery brought by the US storage stock rebound. Especially SK Hynix, which fell over 24% last week, has considerable short-term oversold rebound potential. However, a larger drop does not necessarily mean a stronger rebound; whether foreign investors stop concentrated selling remains very important. In Japan, Kioxia's performance is also worth watching. Kioxia is a major global NAND flash manufacturer and operates in a market closer to $SNDK. However, the Japanese market currently faces an independent risk: as of October 15, Kioxia's margin trading buy balance reached about 920 billion JPY, the largest among Tokyo Stock Exchange-listed companies. Many leveraged long positions had previously bet on storage price increases, but with the stock price continuing to fall, some investors may face margin calls or forced liquidations. This means that even if the US semiconductor market rebounds on October 20, Kioxia may experience a pullback after a rally due to unresolved leveraged positions. Short-term gains need to be judged in conjunction with trading volume and margin position changes. In Taiwan, the weighted index closed down 0.61% on October 19, but intraday it plunged more than 940 points before significantly narrowing losses, led by TSMC and other tech heavyweights. If the US semiconductor rebound continues, Taiwan's advanced manufacturing and packaging/testing supply chains may also gain further support on the 20th. So, will the performance of Korean storage stocks, in turn, affect US stocks $MU and $SNDK? The answer is yes, and this linkage deserves close attention. SK Hynix, Samsung, and Micron are key competitors in the global DRAM and HBM markets. These three companies are influenced by similar AI demand, capacity investments, and storage price expectations, and global capital often allocates them as part of the same industry cycle. Therefore, if SK Hynix and Samsung continue to rebound strongly on the 20th, and foreign investors resume net buying, the market may interpret this as global DRAM and HBM sectors regaining capital recognition. This usually has more reference value for $MU's market sentiment. But $SNDK requires separate analysis. $SNDK mainly operates in NAND flash, with more direct industry ties to Japan's Kioxia, Samsung's NAND business, and SK Hynix's Solidigm. Therefore, judging $SNDK's short-term performance should focus not only on Korean DRAM and HBM stocks but also on Kioxia's trend, enterprise SSD demand, and NAND price expectations. Korean storage gains do not simply imply that $SNDK will rise in sync. Chronologically, the US market rebound on the 19th may drive a higher open in Asia-Pacific on the 20th, and the Asia-Pacific market's performance on the 20th will become an important reference for US pre-market trading on the same day. Both sides influence each other through shared industry expectations and global capital sentiment, but correlation alone cannot determine who is driving whom. One unresolved issue remains. Although US semiconductors rebounded clearly on October 19, Reuters afternoon data showed that 7 of the 11 major S&P 500 sectors still declined. Some large tech and semiconductor stocks are pulling the index up, but overall market risk appetite has not recovered in sync. If US tech stocks are only experiencing an oversold rebound after continuous crashes, and AI financing costs, US bond yields, and market breadth do not improve sustainably, then even if Asia-Pacific opens collectively higher on the 20th, it may again face profit-taking and selling pressure from previous trapped positions. For the market on the 20th, key points to watch are whether Korean storage stocks can continue to outperform the KOSPI, whether foreign investors switch from selling to buying, and whether Japan's Kioxia can remain stable during the rebound. If Samsung, SK Hynix, and Kioxia all strengthen simultaneously, Taiwan's semiconductor sector continues to recover, and US futures remain stable, then the global storage sector's rebound is more likely to extend into US trading on the 20th. Conversely, if Korean storage opens high but closes lower, and Kioxia continues to be pressured by leveraged selling, even if US stocks closed up on the 19th, caution is needed for weakening rebound momentum in US storage stocks on the 20th. Currently, the tendency is to believe there is a chance for continued semiconductor rebounds in Asia-Pacific on October 20, but a single US market rise is not enough to confirm that the global storage sector's adjustment has ended. Short-term trends in Korean and Japanese storage stocks can help gauge market sentiment for $MU and $SNDK on the next trading day; however, what truly determines the upward potential in the coming months remains the supply-demand balance, product prices of DRAM, HBM, and NAND, and whether corporate earnings expectations for 2027 can be continuously realized. The long-term growth logic of the storage industry has not disappeared, but after such severe concentrated sell-offs, rebuilding an upward trend requires time. What is more important to observe on the 20th is whether the rebound can be sustained and whether capital is genuinely starting to flow back, rather than simply predicting how much the market will rise at the open.

Today, the semiconductor sector collectively rebounded, but I still maintain my previous judgment: this round of rise can only be temporarily defined as an oversold rebound, not the establishment of a new upward trend. More notably, the market movement after the U.S. stock market opened on October 19 has actually begun to reveal the problem of insufficient rebound strength. $SOXX $QQQ $MU $SNDK $AVGO Let's first look at the most direct price changes. $SOXX surged to around $513 in the early session today, with gains approaching 4% at one point, but it fell back to around $502 in the afternoon in the U.S. East, narrowing gains to about 1.7%. In contrast, on October 6, $SOXX was still around $589, and on October 16, it had dropped to a low of $492.83. In other words, after such a significant decline, even a 3% or 4% rebound today does not change the previously formed downtrend. From a technical structure perspective, $SOXX still has not firmly reclaimed the previous important resistance zone. The $515–$520 area is a short-term position that needs to be recovered, followed by facing the dense trapped positions in the $530–$545 range. The continuous decline previously formed a large amount of trapped chips; when the stock price rebounds to these areas, some funds may choose to reduce positions rather than continue chasing highs. The intraday fall from around $513 today at least indicates that selling pressure above still exists, but a single-day surge and fall cannot independently prove that institutions are concentrating on selling out. The second issue is that the core risk of this decline has not disappeared. Last week, the market's real concern was not only that AI stock valuations were too high but also the financing ability of some AI infrastructure companies. The yield on $CRWV's bonds maturing in 2031 once exceeded 16% last Monday; although it fell back to about 15.13% today, it remains at a very high level. Goldman Sachs' rating upgrade can drive a short-term stock price rebound but cannot immediately change bond investors' pricing of its debt repayment ability and future financing costs. Third, U.S. Treasury yields have only fallen back from previously extreme highs and have not truly entered a loose environment. The 10-year U.S. Treasury yield remains above 5%, and the construction costs, debt financing, and long-term capital returns for AI data centers still face pressure. For cash-rich tech giants, the impact mainly reflects in valuations; for emerging computing power companies relying on external financing, the impact will directly affect project costs and financing conditions. Additionally, today's semiconductor rebound mainly occurred after eight consecutive trading days of decline. Previously, the Philadelphia Semiconductor Index lost about $2 trillion in market value cumulatively, with a single-week drop exceeding 11%. After such an extreme market, the temporary exhaustion of selling, short covering, and short-term funds bottom-fishing could all drive rapid stock price increases. The rise itself is real, but there is currently insufficient evidence to prove that new long-term funds have retaken market leadership. More importantly, this week $META, $LRCX, $TXN, and other companies will release earnings reports. The market needs to reconfirm 2027 AI capital expenditures, storage demand, wafer manufacturing equipment orders, and data center financing environments. If earnings continue to deliver growth and profit expectations remain stable, semiconductors will have more sufficient reasons to regain valuation premiums. Conversely, even if the current quarter's performance is good, as long as management turns cautious about future growth, the market may continue to downgrade valuations. Therefore, the focus should not only be on how much the price rose today but on whether $SOXX can firmly reclaim the $515–$520 level and further break through the $530–$545 resistance zone. On subsequent pullbacks, it must hold previous lows, and $QQQ, $SPY, and major semiconductor leaders need to form sustained synchronized rallies. If it only rises today and falls tomorrow, then retests $493 or even breaks below previous lows, the downtrend has not materially changed. The long-term bullish logic for AI, storage, and optical communications industries remains unchanged, but the market is now trading not only on demand growth but also financing costs, 2027 profit realization, and how many times valuation investors are willing to pay. I have previously considered the rebound as an opportunity to readjust positions, and there is currently no sufficient reason to change this judgment. For investors holding large amounts of highly elastic semiconductor stocks or short-term options, reducing excessive risk exposure during the rebound remains more reasonable than fully restoring positions. If the market continues to break through resistance and stabilizes on pullbacks over the next few trading days, and the credit market simultaneously recovers, then a reassessment of the previously cautious judgment will be necessary. But before these conditions appear, today's rise looks more like a normal rebound after continuous sharp declines. A second round of decline may not necessarily occur, but there is currently no evidence that the market has completely escaped the downtrend.

The U.S. midterm elections haven't started yet, but over $220 million has already flowed into related prediction markets. The healthcare sector $XLV has risen more than 9% in the past three months, and options traders have begun preparing for intense volatility from late October to early November. However, the most common mistake in the market right now is treating a certain election expectation as a confirmed outcome and adjusting stock allocations based on that expectation prematurely. $SPY $QQQ $SOXX Let's first look at some very interesting data. Reuters reported on October 14 that the cumulative trading volume in prediction markets related to the 2026 U.S. midterm elections has already exceeded $220 million, while the total amount for the comparable election cycle in 2024 was about $92 million. More notably, in Polymarket's congressional election market, the top 1% of wallets by trading volume contributed about 70% of the total volume. This means that even if a certain election result shows a high trading price in prediction markets, it cannot be simply interpreted as the entire market having reached a consensus. A small number of large funds can significantly influence trading prices, and prediction market prices do not directly represent the true voting intentions of the electorate. The stock market is the same. Before the midterms, institutions have already started adjusting positions based on different policy scenarios. The healthcare, energy, industrial, defense, technology, and financial sectors vary in sensitivity to fiscal spending, regulation, tariffs, and congressional legislation. Take the healthcare industry as an example. $XLV has risen more than 9% in the past three months, becoming one of the best-performing sectors in the S&P 500. Some analysts believe this is related to the market trading in advance on possible changes in future healthcare spending policies. But the healthcare sector also benefits from defensive capital inflows. Recently, AI and semiconductors have faced concentrated sell-offs, and investors reducing allocations to high-volatility assets may have driven funds toward pharmaceutical, hospital, and healthcare service companies. If after November 3, relevant healthcare policies do not change as the market previously expected, some stocks that rely on policy expectations for their price increases may face repricing. Even if the policy direction meets expectations, it does not guarantee that stock prices will continue to rise. Because positive factors may have already been priced in, and specific legislation still faces procedural, timing, and fiscal constraints. This is the aspect that event-driven trading often overlooks: a correct expectation does not necessarily mean a profitable trade. The 2018 U.S. midterm elections are a good example. In October of that year, the S&P 500 fell about 6.9%, and the election in November did not immediately change the market trend. Due to the Federal Reserve continuing to tighten monetary policy and suppressed economic growth expectations, U.S. stocks still experienced a significant decline in December. The situation in 2022 was completely different. At that time, the S&P 500 had already hit a bear market low in October, and then inflation data and Federal Reserve policy expectations changed, leading the market to gradually rebound. After both midterm elections, what truly affected U.S. stocks was not just congressional control but the macroeconomic and financial conditions at the time. Looking ahead to 2026. On October 19, semiconductors showed a clear rebound, but the Philadelphia Semiconductor Index had already fallen more than 10% cumulatively the previous week. Meanwhile, the U.S. 10-year Treasury yield remains above 5%, and uncertainties persist around AI data center financing costs, energy prices, and tech giant capital expenditures. These issues will not automatically disappear after the midterm elections. Even if the election results fully align with the policy scenarios priced in by the market, as long as Treasury yields continue to rise and AI leaders' earnings expectations are revised downward, tech stocks may still face valuation pressure. Conversely, if the market has already priced in a lot of risk before the election, and then interest rates fall, corporate earnings reports are strong, and credit markets gradually stabilize, then even without so-called major policy benefits, $QQQ and $SOXX could regain investor attention. Additionally, around October 28, the market will face the Federal Reserve rate decision and a dense schedule of corporate earnings reports. November 3 is the midterm election, and important employment data will be released on November 6. The concentration of these events has led the options market to start reflecting higher volatility expectations in advance. MarketWatch previously cited ORATS analysis indicating that traders are preparing for increased volatility starting at the end of October. However, rising implied volatility in options only means the market is willing to pay higher premiums for future price swings; it does not mean traders have definitively decided the index will break down. This is especially important for those accustomed to trading options. If a large amount of capital has bought protective puts before the event, and the actual outcome is not as severe as feared, even if the index does not rise significantly, a drop in implied volatility could cause those options to depreciate rapidly. Similarly, if the market bets on a big rally after the election but actual policy changes are limited and corporate earnings disappoint, overvalued stocks may continue to decline. Therefore, the next two weeks are not suitable for making position decisions solely based on political prediction markets or historical midterm election rally patterns. What is more worth observing are three actual changes: whether $SPY can maintain key support, whether $SOXX can turn a single-day oversold rebound into a sustained rally, and whether U.S. long-term interest rates and credit spreads can improve simultaneously. If defensive sectors continue to outperform tech before the election, market breadth deteriorates, and $QQQ breaks below previous lows again, it indicates that capital still prefers to reduce risk. If semiconductors regain key moving averages, tech giants' earnings expectations remain stable, and capital starts flowing back from defensive sectors to growth stocks, then the market structure may already be changing. It has long been believed that the semiconductor plunge in October does not necessarily mean the entire market adjustment is over. This judgment still needs to be verified by subsequent price movements rather than relying on election result predictions. The 2026 midterm elections are likely to bring new policy expectations, but for stock investors, merely guessing political events in advance is not enough. The market trades on how reality deviates from expectations. What truly causes large fluctuations is not necessarily the outcome the market fears most, but those changes that have been ignored by capital yet ultimately occur.

Semiconductors have been continuously plummeting, while the healthcare sector keeps hitting new highs. Over the past week, $XLV rose about 3.5%, whereas $SPY fell about 2%, a performance gap exceeding 5 percentage points. However, starting October 19, semiconductors began a collective rebound, and the healthcare sector showed signs of weakening. With only two weeks left until the U.S. midterm elections on November 3, this rotation into defensive funds may be entering a critical observation phase. $QQQ $SOXX $MU $SNDK Let's first look at the performance over the past three months. $XLV has gained about 10% cumulatively, while $SPY has risen less than 3%, clearly showing healthcare outperforming the broader market. The shift in capital preference is understandable. In recent years, the main drivers of U.S. stock gains have been AI computing power, advanced semiconductors, and data center infrastructure. But with long-term U.S. Treasury yields surpassing 5% and rising AI financing costs, the market is beginning to reassess the future earnings and valuations of these companies. In contrast, the healthcare industry's earnings drivers are relatively independent. Regardless of whether AI capital expenditures slow down, demand for pharmaceuticals, medical services, and medical devices remains relatively stable. $LLY benefits from the expanding weight-loss drug market, $ABBV maintains growth through immunology drugs, and $MRK has a mature pharmaceutical business. These companies didn't suddenly become valuable because the AI sector declined; rather, their relatively stable earnings attract more attention when market risk appetite decreases. The midterm elections also add policy expectations for the healthcare sector. The 2025 U.S. fiscal bill involves adjustments to Medicaid and other healthcare spending, and the market is evaluating whether changes in congressional control might affect the implementation of some cuts. However, it's important to distinguish that healthcare spending policies impact hospitals, insurers, and pharmaceutical companies differently. Increased healthcare payments may benefit some service providers, while stricter drug pricing regulations could compress pharmaceutical profits. Even if congressional control changes, related policy adjustments require legislative processes and are subject to presidential veto power and other constraints. Therefore, the election does not guarantee a definitive positive outcome for the entire $XLV. Looking at recent price structure: on October 15, while AI and semiconductors continued to be under pressure, the healthcare sector rose about 1.8% in a single day. But by October 19, semiconductors began a clear rebound, and the previously strong healthcare sector faced pullback pressure. BTIG technical analyst Jonathan Krinsky has pointed out that although healthcare has performed strongly over the past six months, short-term upward momentum may weaken. This does not mean the healthcare uptrend is over, but suggests the previous defensive rotation may need reassessment. Will funds return to tech stocks after the election? It cannot be judged solely by the November 3 date. The next sector rotation will still depend on the combined changes in interest rates, earnings expectations, and risk appetite. If after the midterms, policy uncertainty eases, the U.S. 10-year Treasury yield continues to decline, AI leading companies report continued growth, and the semiconductor index breaks through previous rebound highs, then valuation pressure on growth stocks may gradually ease. Funds that reduced tech stock allocations due to deleveraging and risk control might reconsider increasing their positions. For stocks like $MU, $SNDK, $AVGO, and $NVDA, valuation recovery potential may be higher than the already significantly risen defensive sectors. But this depends on no significant deterioration in industry chain earnings expectations, and the tech rebound must be sustainable rather than just an oversold bounce. Conversely, if after the election, U.S. long-term rates remain high, AI data center financing issues persist, and 2027 earnings forecasts for tech giants are revised downward, then even with reduced political uncertainty, tech stocks may not immediately resume an uptrend. Relatively stable earnings sectors like $XLV and $XLP may continue to attract capital. It should be noted that the healthcare sector is not without risks. $XLV has outperformed the market for several consecutive months, and some large pharmaceutical companies' stock prices are near historical highs. If market risk appetite improves and funds chase growth stocks again, the healthcare sector may face adjustments due to profit-taking and relative valuation changes, even if fundamentals do not deteriorate. Currently, it is more worthwhile to focus on the relative strength between $XLV and $SOXX, $QQQ, rather than simply comparing their daily gains or losses. If semiconductors outperform healthcare for several consecutive weeks, stabilize above key moving averages, and their pullback narrows, it indicates the market may be regaining risk appetite for growth stocks. If $SOXX rebounds fail to sustain while $XLV remains strong, the market's overall defensive bias remains unchanged. It has been emphasized that a long-term bullish view on the AI industry does not mean one should always be fully invested in AI stocks. The healthcare sector's strength during the semiconductor downturn shows that capital allocation among different industries can significantly affect portfolio performance. However, $XLV is no longer at the price level from a few months ago, and semiconductors have already experienced a significant correction. Unconditionally chasing healthcare gains and selling tech stocks also carries the risk of pursuing short-term relative returns. In the next two weeks, a more reasonable approach is to observe both directions: whether defensive sectors can maintain relative strength and whether semiconductors can truly complete a technical reversal. If after November 3, the macro environment improves, tech earnings continue to be realized, and market breadth expands again, conditions for capital rotation from defense to growth may gradually form. The midterm election will not automatically determine which sector leads the next market rally. Ultimately, it depends on which industries can provide more attractive risk-adjusted returns in the new interest rate and earnings environment.

U.S. national debt has surpassed $40 trillion, with the fiscal deficit for the 2026 fiscal year approaching $2 trillion, and debt interest-related expenditures alone reaching $1.36 trillion. With only two weeks left until the November 3 midterm elections, the market is still debating whether U.S. stocks will see a new round of gains after the election, but what may truly determine the valuations of $SPY, $QQQ, and the entire AI semiconductor sector is whether U.S. Treasury yields can continue to decline. $SOXX $MU $SNDK $AVGO Let's first look at the data just released by the U.S. Treasury on October 16. For fiscal year 2026, U.S. federal revenue is about $5.40 trillion, a year-on-year increase of 3%; federal expenditures reached $7.40 trillion, up 6% year-on-year; resulting in a fiscal deficit of $1.99 trillion, an increase of about $217 billion compared to fiscal year 2025, equivalent to 6.2% of U.S. GDP. At the same time, the total U.S. national debt surpassed $40 trillion as early as August. About $32 trillion of this is public-held federal debt, with the remainder mainly held by government internal accounts. These two measures should not be conflated, but regardless of which is used, long-term fiscal pressure is already very evident. More concerning is the cost of debt. In fiscal year 2026, U.S. debt interest-related expenditures reached $1.36 trillion, a 12% year-on-year increase. This figure has already exceeded the entire annual defense spending, becoming an extremely important item in the federal budget. This means the U.S. is facing a long-term constraint: fiscal deficits remain high, and the government needs continuous financing; if newly issued debt carries higher interest rates, refinancing maturing old debt could further increase interest burdens. Of course, this does not mean the U.S. will immediately default on its debt. The dollar remains the world's most important reserve currency, and the U.S. Treasury market's depth and liquidity far exceed those of other countries. $40 trillion is not a fixed threshold that triggers a financial crisis. For stock investors, what truly matters is how this massive debt affects interest rates, and how high rates ultimately change corporate profits and valuations. In early October, the U.S. 10-year Treasury yield briefly touched around 5.31%, reaching a more than 20-year high. After recent tech stock sell-offs and safe-haven inflows into the Treasury market, yields had fallen back to about 5.08% by October 19. A change of just over 20 basis points is enough to significantly impact market pricing of tech stocks. The reason is straightforward. When the 10-year U.S. Treasury yield is above 5%, investors holding low-risk U.S. Treasuries can obtain relatively high nominal yields. Meanwhile, valuations of high-growth tech stocks largely depend on earnings and cash flows over the coming years. The higher the risk-free rate, all else equal, the lower the present value of future cash flows. Companies like $NVDA, $AVGO, $MU, and $SNDK may continue to grow earnings in the future, but their stock prices could face valuation compression as the market demands higher returns. This is why it has been repeatedly emphasized that a lack of obvious deterioration in AI fundamentals does not mean AI stocks won’t continue to decline. Long-term corporate growth and how much the market is willing to pay for that growth in valuation multiples are two completely different matters. Additionally, this round of AI investment faces an issue that has not received enough attention in recent years: financing costs. Tech giants like $MSFT, $GOOG, $AMZN, and $META have strong cash flows and can support AI capital expenditures through a mix of internal funds and external financing. However, some emerging AI infrastructure companies rely more heavily on loans, bonds, equipment financing, and long-term leases. For these companies, rising interest rates not only affect stock valuations but also directly increase project construction and refinancing costs. Suppose a data center project originally expected to achieve reasonable returns through long-term financing, but future financing rates continue to rise, while power access, engineering construction, and equipment delivery face delays; the actual investment return could be significantly lower than initially expected. The market will not wait until all projects incur losses to reprice. As long as uncertainty about future cash flows rises, the related companies’ financing costs, credit spreads, and stock valuations may all come under pressure simultaneously. This pressure could eventually transmit to the AI chip, storage, optical communication, and server industry chains. This also explains why recent declines in U.S. Treasury yields have led to a noticeable rebound in semiconductors. Before the market opened on October 19, $MU and $AVGO both rose about 3%, easing concerns about high interest rates. But it is important to distinguish whether the decline in Treasury yields comes from improved inflation expectations or from funds buying Treasuries out of fear of tech stock risks. If it is the former, it may support both corporate profits and stock valuations; if the latter, it indicates funds are still reducing risk exposure and does not necessarily mean the market has fully stabilized. Looking ahead to the November 3 midterm elections. Regardless of which side controls Congress, U.S. fiscal policy will be constrained by debt size, interest costs, social security spending, and fiscal revenues. If post-election fiscal policy expectations imply larger deficit financing and inflation pressures do not ease, long-term Treasury yields may come under renewed pressure. Conversely, if fiscal prospects improve, inflation gradually falls, and market concerns about future Treasury supply and interest rate risks ease, the valuation environment for tech stocks could improve. A change in congressional control does not automatically mean government spending will decline. Existing tax laws, social security, Medicare, and debt interest have strong continuity, and any significant fiscal adjustments require specific policies and legislative support. Therefore, one cannot simply equate any election outcome with rising Treasuries or rising tech stocks. For the upcoming market, three specific changes need attention. Whether the U.S. 10-year Treasury yield can sustain a decline from above 5%, rather than briefly dropping then surging back to 5.3%. Whether the U.S. Treasury’s subsequent financing plans, auction demand, and term premiums continue to pressure long-term rates. And whether the AI industry chain’s credit spreads, corporate capital expenditures, and 2027 earnings expectations can remain stable in a high interest rate environment. If Treasury yields break above previous highs again, tech stock credit spreads widen, and major AI companies’ earnings forecasts are revised downward, then even after the midterm elections, $QQQ and $SOXX could still face a new round of corrections. Conversely, if long-term rates continue to fall, credit markets stabilize, AI leaders continue to deliver growth in earnings reports, and semiconductors rebuild an upward structure, then prior valuation compression may gradually end. Currently, the preference is to remain cautious rather than prematurely betting on a broad post-election rally just because November 3 is approaching. The long-term bullish view on AI remains unchanged, but high interest rates and massive capital expenditures have altered the valuation environment for some companies. Companies that can consistently deliver free cash flow, orders, and earnings growth will be better positioned to regain market premiums. The U.S. midterm elections may remove some political uncertainty but will not automatically eliminate the pressures from $40 trillion in debt, nearly $2 trillion annual deficits, and long-term Treasury yields above 5%. If these issues do not improve significantly, a post-election rebound does not necessarily mean a new upward trend has been established.

The U.S. midterm elections on November 3rd could become an important catalyst for the next phase of AI industry chain repricing. The market has previously focused on order growth for $NVDA, $MU, $SNDK, and $AVGO, but has overlooked a developing change: an increasing number of U.S. states and local governments are beginning to reexamine AI data center construction. Issues such as power supply, land approvals, tax incentives, and residential electricity rates have become political topics. $SOXX $QQQ Morgan Stanley's midterm election research released on October 14 specifically addressed this issue. Their assessment is that U.S. AI infrastructure investment will continue, but future construction conditions may become increasingly stringent. Compared to nationwide restrictions from the federal government, state and local regulatory agencies may have a more direct impact on the pace of data center deployment. This means that after the midterm elections, the policy environment facing the AI industry chain may show more pronounced regional differentiation. Currently, several U.S. states have already seen similar situations. Texas has suspended some data center approval processes, Pennsylvania has adjusted fast-track approval rules for related projects, and New York has imposed restrictions on certain data center permits. In Nevada, data center construction has even become a topic in the governor's election campaign. These policies do not mean the U.S. is preparing to stop building AI data centers. The main concerns across regions include insufficient power supply, rising residential electricity prices, water resource consumption, and the burden that project construction places on local infrastructure. However, for the capital markets, changes in approval times and construction costs are enough to affect company valuations. In recent years, the market has been accustomed to estimating semiconductor companies' revenue growth over the next few years based on capital expenditure and computing power procurement plans announced by tech giants. But from contract signing to actual revenue realization, multiple stages must be completed, including financing, land approval, grid connection, construction, equipment delivery, and official operation. Any delay in any of these stages can alter the actual procurement rhythm. The pressure on the U.S. power grid is already very evident. According to a Reuters report on October 13, the PJM grid, covering 13 states plus Washington D.C., found that about 37.7GW of new generation capacity is hindered by the need for transmission network expansion and upgrades. This does not mean all 37.7GW of data center projects are delayed, but it reflects the real constraints faced by power infrastructure. Morgan Stanley even predicts that U.S. data center developers may face a power supply shortfall exceeding 30% by 2028. For tech giants like $MSFT, $GOOG, $AMZN, and $META, which have mature businesses and strong cash flows, project delays may mainly manifest as adjustments in capital expenditure timing, increased construction costs, and changes in computing power delivery schedules. But for computing infrastructure companies like $CRWV and $NBIS, which rely heavily on financing, the situation is more complex. Some companies need to secure financing through long-term customer contracts and then build data centers via loans, bonds, and equipment leasing. If projects cannot connect to the grid on time and contract revenues are not realized as scheduled, financing costs and debt repayment pressures may continue to accumulate. Especially with the U.S. 10-year Treasury yield still high and the AI financing market under renewed scrutiny, project delays could further compress investment returns. This pressure may also propagate along the industry chain. Slowed data center construction could delay procurement plans for GPUs, custom ASICs, DRAM, enterprise SSDs, optical modules, and network equipment, thereby affecting the future revenue recognition schedules of companies like $NVDA, $AVGO, $MU, $SNDK, $LITE, and $COHR. However, it must be emphasized that procurement delays do not equal permanent order cancellations, nor do they indicate a sudden shrinkage in AI end-user demand. Additionally, the actual impact of current policy restrictions should not be overstated. SemiAnalysis previously studied over 300 local U.S. data center construction restrictions and estimated that the capacity truly affected and possibly delayed is about 2.3GW, which remains limited compared to the projected new data center capacity in the U.S. by 2027. Many restrictions are temporary approval suspensions and do not affect projects that have already obtained permits. Some companies can also choose to relocate construction sites. Therefore, the changes brought by the midterm elections are more likely to concentrate AI investments in regions with sufficient power, higher approval efficiency, and better infrastructure, rather than a sudden halt of data center construction across the entire U.S. This may also lead to a new round of differentiation in the AI industry chain. Companies that have secured power connections, stable customer contracts, and lower financing costs have relatively stronger project delivery certainty. Conversely, companies that have only announced large investment plans but have not yet secured power, funding, and construction permits may face stricter valuation scrutiny. For companies related to power equipment and infrastructure like $ETN, $VRT, and $GEV, grid upgrades and power supply constraints may still create long-term demand, but actual order fulfillment depends on project approvals, financing realization, and customers' willingness to bear additional costs. Combined with recent extreme adjustments in the semiconductor sector, the market has begun shifting from purely trading on AI demand growth to simultaneously evaluating financing costs, delivery capabilities, and capital returns. Going forward, key points to watch include data center approval policies in various states after November 3, tech giants' 2027 capital expenditure guidance, actual delivery times of major projects, and whether related companies revise earnings forecasts downward. If restrictions do not significantly expand, grid construction progresses, and tech giants continue to fulfill capital expenditures, concerns about a slowdown in AI infrastructure expansion may gradually ease. Conversely, if more key regions raise power access thresholds, require developers to bear additional construction costs, and high-leverage companies' financing continues to deteriorate, the semiconductor industry chain may face a new round of earnings expectation adjustments. Long-term AI demand has not fundamentally changed due to the midterm elections, but there may be an increasingly obvious time lag between demand growth and actual project delivery. The semiconductor industry's valuation in 2027 may increasingly depend on which orders can be fulfilled on time, rather than just how many billions of dollars in investment plans companies announce. This is also why the current sharp rebound in semiconductors should not be taken as a signal that the entire adjustment cycle is over. The AI industry still has long-term growth potential, but short-term risks remain until financing, policy, and power constraints are fully validated.