The "biggest bearish factor" for chip stocks has finally arrived? Will Meta be the "first major company to cut capital expenditure"?

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Meta's plan to sell surplus computing power has shattered the market's core belief in "absolute scarcity of computing power." This strategic shift has triggered a massive outflow of funds from chip stocks and also signals that the market's tolerance for unrestricted capital expenditures by tech giants is approaching a turning point.

This news caused extreme polarization in the secondary market. Meta, which proactively signaled spending cuts, saw its share price soar 10% in a single day, marking its best performance of the year; meanwhile, traditional AI hardware beneficiaries—semiconductor giants, memory chip manufacturers, and emerging cloud service providers (Neocloud)—suffered heavy losses and dragged the Nasdaq index into significant volatility.

Wall Street institutions generally interpret this as a major narrative shift in the AI investment cycle. The focus of capital is rapidly moving from pure hardware infrastructure construction to the stability of corporate free cash flow and computing power utilization. Investors are using real money to reward tech giants that demonstrate financial discipline.

This reshaping of underlying logic not only rewrites the power dynamics between hyperscale cloud providers and chip suppliers, but also directly leads to the collapse of crowded momentum trading strategies, introducing new uncertainties for the upcoming US earnings season and market liquidity.

Meta changes course to sell "surplus computing power," major firms face a capital expenditure turning point

According to Bloomberg, Meta is forming a new business unit that plans to sell its surplus computing power to external clients for revenue. Insiders revealed that possible schemes include allowing external access to various AI models hosted on Meta’s existing AI infrastructure, in a mode similar to AWS’s Bedrock service. Meta would operate the data centers and chips powering models such as Muse Spark, and charge developers for access.

Furthermore, Meta is considering selling "raw" computing power directly. Ironically, Meta recently signed multi-billion dollar contracts with emerging cloud providers like CoreWeave and Nebius, and now this move implies it will directly compete with its own suppliers.

This internal initiative, named "Meta Compute," is intended to build and manage the company's AI infrastructure. The team is jointly led by Meta’s Head of Infrastructure Santosh Janardhan, Superintelligence Lab AI executive Daniel Gross, and Meta President Dina Powell McCormick.

In fact, this shift was foretold. Meta CEO Mark Zuckerberg hinted to investors in the May shareholder call that selling surplus computing power or API services was "absolutely under consideration." Another company, SpaceX, which previously sold surplus computing power, is also currently facing intensified competition in this arena.

The "scarcity of computing power" narrative is challenged; chips and momentum stocks suffer heavy losses

Meta’s move directly challenges the core premise fueling the recent surge in chip stocks. Rich Privorotsky, head of Goldman Sachs' 1-Delta trading desk, warned that the core market premise has always been the scarcity of computing power; once supply increases and leasing prices drop, the shortage narrative will be overturned, and the hardware sector will be the first to feel the pain.

As a result, the chip and memory sectors took the first hit, with star stocks like Nvidia, Micron, and SanDisk facing intense sell-offs. Emerging cloud providers were seen as the most obvious losers, with their share prices posting the biggest drop of the year.

The collapse of the hardware sector triggered a comprehensive meltdown in momentum strategies. Goldman Sachs’ high Beta momentum basket (currently mainly composed of chip and memory stocks) plunged 9% in a day after historic gains. BTIG analyst Jonathan Krinsky noted that the long-short high Beta momentum index fell 10%, recording its worst single-day performance since 2020.

In addition, the yield spread between Bloomberg’s Mag7 Index and the Philadelphia Semiconductor Index (SOX) reached its largest single-day extreme (+8%) since 2015, indicating that funds are frantically withdrawing from the semiconductor sector.

Market logic reshaped, investors heavily reward "spending cuts"

In sharp contrast to the dismal hardware stocks, the market has given high premiums to signals of capital expenditure reductions. As Goldman Sachs previously predicted, the first hyperscale cloud provider to hint at a slowdown in spending will be rewarded in its share price.

Meta’s 10% surge validates this view, indicating that investors believe incremental revenue streams and financial discipline are more attractive than bottomless arms races at current valuation multiples.

UBS trader Christina Dwyer said that related reports have shifted the market narrative to stricter financial discipline, easing concerns about relentlessly rising capital expenditures. Capex expectations are no longer tilted unilaterally upward, and market focus has turned to the stability of free cash flow.

Amid capital rotation, the software sector saw the second-largest single-day excess return relative to the semiconductor sector in a year.

Increasing competition and liquidity concerns, upcoming earnings become key guidance

Meta’s entry complicates the supply and demand outlook for hyperscale cloud providers. Although new competitors disrupt the status quo, the easing of supply chain bottlenecks may also reduce cost pressures.

UBS points out that the mention of "surplus capacity" has triggered market concerns about the underlying true demand for AI. Looking ahead to the upcoming Q2 and Q3 earnings seasons, the guidance provided by companies and full-year capex plans will be the key to determining whether the current re-rating of valuations can be sustained.

Notably, as the market undergoes major rotations, it is facing serious liquidity risks. Goldman Sachs trading desk warns that although the US stock market has reached its highest daily turnover since 2026, market liquidity remains poor. In June, top-of-book liquidity for S&P E-mini futures plunged 33% month-on-month, from $12 million to just $8 million.

This means the market is trading at record volumes in an increasingly shallow pool of funds. Every large transaction triggers more extreme market volatility, execution costs are rising, and the risk of abnormal intraday crashes remains high. With historically poor momentum stock performance in July blending with seasonal factors, the game between chip stocks and the broader market may become even more turbulent.

Risk Warning and DisclaimerThe market carries risks, investment must be prudent. This article does not constitute personal investment advice, nor does it take into account the particular investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific situations. You bear responsibility for investments made based on this article. ```