Non-farm payrolls data scare off the US stock market, but AI hardware stocks buck the trend and surge! The semiconductor index rose over 3%, and SanDisk jumped 12%.

The unexpectedly strong US non-farm payrolls report in August put pressure on the US stock market on Friday, but funds did not withdraw from technology stocks across the board. Instead, they clearly flowed into the hardware chain of AI infrastructure.

All three major U.S. stock indexes ended a two-day winning streak, with the Dow Jones Industrial Average down 0.51%, the S&P 500 down 0.38%, and the Nasdaq Composite down 0.29% by Friday's close. Meanwhile, the Philadelphia Semiconductor Index rose approximately 3.4%, becoming one of the best-performing sectors of the day.

Memory chips, semiconductor equipment, and AI optical communication sectors all rallied, with SanDisk (SNDK) rising nearly 12% to become the biggest gainer in the S&P 500 on Friday. Marvell (MRVL) rose more than 7%, Applied Materials (AMAT) rose more than 4%, and AMD rose about 4.7%.

SK Hynix (SKHY), Seagate Technology (STX), Micron Technology (MU), and Western Digital (WDC), representing storage and data storage stocks, closed up approximately 8.1%, 6.3%, 6.1%, and 5.9%, respectively. AI-related hardware stocks also surged, with Advanced Micro Devices (SMCI) rising over 4.5%.

More notably, this counter-trend rally was not limited to traditional chips . Optical communication and optical hardware stocks, benefiting from the expansion of AI data centers, also bucked the trend and strengthened, with Coherent (COHR), Corning (GLW), and Lumentum (LITE) closing up approximately 6.6%, 5.7%, and 4%, respectively.

The market is expressing an increasingly clear judgment with real money: the Fed may raise interest rates, which will suppress overall valuations and some software growth stocks, but the industrial logic of AI computing power, storage and data center interconnect demand has not been destroyed by interest rate expectations for the time being.

The broader market is worried about interest rate hikes, but the chip sector isn't: funds are shifting "from software to hardware."

The most noteworthy aspect of US stocks on Friday was not the decline in the three major indices, but rather the extremely pronounced divergence within the technology sector .

The Philadelphia Semiconductor Index rose more than 3% at one point during the session, and the Roundhill Storage ETF also rose significantly, while the software sector became a major drag on technology stocks.

Barron's noted that Thomas Martin, senior portfolio manager at Globalt Investments, stated bluntly that Friday's strength in chip stocks had " zero relation " to the non-farm payroll data, and was primarily due to the ongoing rotation between semiconductors and software . This contrasted sharply with the iShares Expanded Tech-Software ETF, which fell approximately 2.4% that day.

This actually explains a seemingly contradictory phenomenon:

A stronger non-farm payrolls report increases the probability of a Fed rate hike, which theoretically puts pressure on overvalued tech stocks; however, funds have withdrawn from some software stocks and instead flowed into AI hardware.

The reason is that the market's pricing logic for AI transactions is changing.

In the past few years, the AI investment boom has largely focused on software, models, and application layers; however, after entering 2026, investors are paying more and more attention to the "shovel sellers" who can actually get orders from AI capital expenditures—GPUs, storage, network equipment, optical modules, optical fibers, and data center infrastructure.

This means that for these companies, the core variable determining profit growth is not just the risk-free interest rate, but whether capital expenditures on hyperscale data centers continue to grow, whether the demand for AI computing power continues to increase, and whether there are supply bottlenecks in related hardware .

This week's market attention to OpenAI's newly released GPT-6 Astra has further reinforced this industry narrative. The model's release is seen by the market as a signal of continued upgrades in AI capabilities, while the massive infrastructure investment plans between OpenAI and other AI companies, along with giants like Microsoft, Oracle, CoreWeave, AMD, and Broadcom, have made the continued demand for AI hardware a key focus of market transactions once again.

SanDisk surges 12%: Memory chips become the "hottest" branch of AI hardware.

If the Philadelphia Semiconductor Index's 3.4% gain was already quite impressive, then SanDisk's (SNDK) approximately 12% gain was even more remarkable.

SanDisk was one of the top-performing components of the S&P 500 on Friday; Micron rose about 6%, while Western Digital and Seagate Technology also rose about 6% each. The storage sector as a whole strengthened, with the Roundhill Memory ETF rising nearly 7% at one point.

It is no coincidence that memory chips have become a target of concentrated financial attacks.

The rapid expansion of AI data centers not only means increased demand for GPUs, but also a simultaneous increase in demand for storage products such as HBM, DRAM, NAND, and enterprise-grade SSDs. Especially as AI models grow in size, inference tasks increase, and data centers continue to expand, storage and data transmission are becoming increasingly important components of AI infrastructure.

Recently, a relatively clear narrative of an "AI storage supercycle" has emerged in the market. The Financial Times quoted Dan Kim, an executive at TechInsights, as saying that AI data centers are driving a surge in demand for DRAM and NAND, with memory chip prices rising by more than 200%. New capacity is not expected to increase significantly until around 2028, and supply constraints are further strengthening the bargaining power of memory manufacturers.

Therefore, unlike some software stocks that are increasingly facing the question of whether AI will disrupt their own business models, memory chip companies are more directly on the supply side of AI capital expenditure .

This also means that even with rising interest rates and a reduction in overall market risk exposure, investors are still willing to give these hardware companies higher profit expectations.

From "computing power" to "connectivity": Optical communication stocks are also attracting investment.

Another clearly strong trend is the optical communication and interconnection infrastructure for AI data centers .

Stocks related to optical communications, such as Corning, Coherent, and Lumentum, all rose against the market trend on Friday. Although these companies have different specific businesses, the market has given them a very clear label: the expansion of AI data centers requires more and more high-speed optical interconnects.

A recent study released by Deutsche Bank points out that the AI industry is entering a new phase—investment is shifting from simply increasing computing power to connectivity and networking . The bank believes that as data centers continue to expand, companies that "manufacture and transmit optical signals" are becoming major beneficiaries of AI infrastructure, and lists Lumentum and Coherent as key recommended stocks.

This is why optical communication stocks were able to buck the trend and strengthen during Friday's "interest rate hike trade".

For the market, improved GPU performance means increased computing power, but as more and more GPUs are deployed in the same data center or even between different data centers, data transmission between chips will become a new bottleneck .

As a result, the importance of optical modules, lasers, optical fibers, and high-speed network equipment continues to increase.

Previously released earnings reports from Lumentum and Coherent already indicated that AI demand is rapidly entering their businesses. Lumentum's latest fiscal quarter revenue grew by over 100% year-over-year, while Coherent also recorded a record quarterly revenue.

Therefore, the market is now trading not just "AI chips," but a more complete AI infrastructure chain: computing chips → storage → network → optical communication → data center power and cooling .

AMD, Applied Materials, and others also saw price increases: the hardware market rally is spreading to the entire industry chain.

This preference for funding is not limited to flash memory and optical communications.

AMD rose 4.69% on Friday, while Applied Materials gained 4.31%; AI hardware-related stocks such as Marvell and AMD also rose. Reuters reported that the semiconductor sector rose 3.4% that day, significantly outperforming other sectors.

The rise in Applied Materials' stock price is particularly noteworthy. As a leading semiconductor equipment manufacturer, its increased share price indicates that investor attention has expanded from AI chips themselves to the equipment needed to manufacture them .

In other words, the market is not trading on the individual benefits of a particular company, but rather on a more macro-level logic: as long as AI capital expenditures do not cool down significantly, the entire hardware supply chain, from GPUs and storage to semiconductor equipment, optical communications, and network infrastructure, is likely to continue to benefit.

This also explains why the interest rate shock from a strong non-farm payroll report did not treat all highly valued tech stocks equally, as it has in the past.

The "moat" of AI hardware: Profit growth temporarily outweighs interest rate pressures.

Of course, the strong non-farm payrolls report still brings an issue that cannot be ignored for AI hardware stocks: valuation.

On Friday, the US added 162,000 non-farm payroll jobs in August, far exceeding market expectations of 56,000. July's employment figure was also significantly revised from a decrease of 23,000 to an increase of 21,000. Following the data release, market bets on a Federal Reserve rate hike in September quickly intensified, with the probability of a 25 basis point rate hike rising from approximately 49.4% to 58.4%; the 2-year Treasury yield rose to approximately 4.37%.

Generally speaking, a higher risk-free interest rate means a higher discount rate for the future cash flows of growth stocks, and AI stocks with high valuations should be under pressure.

But this time, a different situation has emerged in the market: investors are distinguishing between "valuation stories" and "earnings stories".

Some software companies face competition from AI, changes in business models, and valuation challenges; while the AI hardware supply chain enjoys more direct support from order growth and capital expenditure.

Barron's quoted Martin of Globalt as saying that the strength of chip stocks that day was mainly due to sector rotation, while the continued enthusiasm for AI remains an important reason for the relative resilience of the technology sector. Meanwhile, the market had previously shown signs of a rotation from software to hardware.

More importantly, some leading AI hardware companies, after their previous significant gains, are still some distance from their all-time highs. While storage stocks like SanDisk and Micron have surged this year, not all are near their historical highs, leaving room for renewed investment in the sector. Micron rose about 4.4% to around $1,000 on Friday, and SanDisk gained over 11%, but Micron is still about 20% below its June high.

On one hand, there's "interest rate hike trading," and on the other, "AI trading": the US stock market is experiencing rapid internal divergence.

Ultimately, two trades actually took place simultaneously in the market on Friday.

The first trade is a macroeconomic one: strong non-farm payrolls → increased probability of a Fed rate hike in September → rising US Treasury yields → pressure on the overall market and some growth stocks.

The second transaction is an industry deal: AI model capabilities continue to be upgraded → data center capital expenditure continues → demand for chips, storage, networks and optical communications continues to grow → AI hardware becomes a safe haven for funds.

This explains why, while all three major indices closed lower, the Philadelphia Semiconductor Index rose 3.4%, and SanDisk surged by about 12%. Reuters data shows that the semiconductor sector was one of the market's biggest winners on Friday; Barron's noted that the semiconductor index rose by about 3%, while the software ETF fell by more than 2%.

For AI hardware, the real test going forward is not a single non-farm payrolls report, but whether the high-interest-rate environment can ultimately be transmitted to corporate capital expenditures .

If future data proves that the economy remains strong enough and AI investment continues to expand, then these hardware companies may become relative beneficiaries of a "strong economy + high interest rate" environment; however, if interest rates continue to rise and eventually begin to suppress corporate financing and data center capital expenditures, then this current strong theme will also face a dual test of valuation and demand.

At least on September 4th, the market gave a very clear answer: the broader market was trading interest rate hikes, while AI hardware was trading AI.

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