Kimi K3 Guts Chip Stocks as Capital Hunts AI’s Second Wave

Dear readers,

Yesterday we mentioned that Moonshot AI’s Kimi K3 model had “rattled” the industry. By Friday’s close, rattled looked like an understatement. What started the week as a Chinese open-source curiosity ended it as the trigger for the sharpest chip selloff in more than a year — and the clearest sign yet that the AI trade is entering a more discriminating phase. Capital isn’t fleeing artificial intelligence. It’s fleeing the parts of it that can no longer promise limitless pricing power, and hunting for the parts that can actually cash a check.

The Kimi K3 Shock and Hardware’s Capitulation

The selloff’s origin story is almost too clean: a Chinese startup, an open-weight model, and a benchmark table that suddenly favored Beijing over Silicon Valley. Moonshot AI unveiled Kimi K3, a 2.8-trillion-parameter open-weight model, and it promptly beat US systems on several benchmarks. Investors did the math fast. If Chinese open-source models are closing the technical gap, the pricing power that justifies sky-high chip orders starts to look shakier — and so do the earnings multiples built on it. The VanEck Semiconductor ETF (SMH) lost 8% on the week; Taiwan Semiconductor’s shares slid 7.3% in Taipei trading. The Morgan Stanley Tech Momentum Index fell 35% over 17 trading days, its worst stretch in 27 years. Call it what strategists are calling it: a mid-cycle reset. Anyone still buying hardware rallies on autopilot is ignoring the margin compression staring back at them from the benchmark charts.

Infrastructure Costs Escalate: Oracle Pays the Price

Nowhere is the cost of building the AI world more visible than at Oracle. S&P Global cut the company’s long-term issuer rating this week from BBB to BBB-, one notch above junk, after concluding that Oracle had badly underestimated its own capital needs. The company now guides fiscal 2027 capital expenditures to $90 billion to $95 billion — S&P had been modeling just $60 billion — and expects an operating cash-flow deficit of nearly $42 billion. While the hyperscalers absorb that kind of pain, the suppliers arming their data centers are having a very different quarter. Eaton Corporation reported that its data-center orders jumped roughly 240% in the first quarter of 2026. The message is unmistakable: smart money is drifting away from chip design itself and toward the cooling systems, power infrastructure, and physical plumbing that keep the racks running.

Netflix Closes Out a Rough Week

Netflix gave the market one more reason to distrust growth stories that come without receipts. Shares fell another 7.3% in Friday’s session, extending a week that began with a revenue miss ($12.56 billion versus the $12.6 billion consensus) and a third-quarter outlook ($12.86 billion versus the roughly $13 billion Wall Street wanted) that read as a warning rather than reassurance. The decision to move engagement-data disclosures from quarterly to annual starting in 2027 didn’t help; when a growth company starts dialing back transparency on its own user metrics, the market assumes the worst about what those metrics might show.

Should investors sell immediately? Or is it worth buying Texas Instruments?

SpaceX Falls Below Its Debut Price

Elon Musk’s SpaceX offered technology investors a separate reminder that momentum can reverse fast. Shares closed Friday at $123.99, well below the $135 IPO price set barely a month earlier, with roughly $1 trillion in market value already erased. An aborted Starship test flight didn’t help sentiment, but the bigger overhang is Chinese competition. Bernstein Research now calls China the single largest long-term threat to SpaceX’s business, and for good reason: the successful first-stage landing of China’s Long March 10B rocket arrived roughly six months ahead of what Western analysts had projected. With the lock-up period for institutional shareholders set to expire in early August, the stock may not have found its floor yet.

Oil Becomes the Silent Return-Killer

Away from tech, a different risk has been building on the macro side. Brent crude climbed to $88.10 a barrel over the week, a 4.6% jump from the prior week’s $76, as US airstrikes on Iran intensified and traders priced in fresh risk to oil flows through the Strait of Hormuz. That’s a problem for every asset class, not just energy. Rising crude has pushed 10-year Treasury yields to 4.55% and 30-year mortgage rates to their highest level in nearly a year. Fed Chair Kevin Warsh continues to argue that the $700 billion AI buildout will prove deflationary over the long run. The gas pump is telling a different story in the meantime, and bond markets are listening to the pump.

The Takeaway

Next week is shaping up as the real test of how convincingly this rotation holds. With the Fed entering its pre-decision blackout period, all eyes shift to earnings: Alphabet, Tesla, and Texas Instruments report Wednesday, with Intel following Thursday. The question these results need to answer is simple — are the AI investments of the past several quarters finally showing up in the income statement, or has the mid-cycle reset only just begun? Investors rotating out of hardware and into infrastructure and cash-generative software are betting on the former. The market will find out fast whether that bet was early or simply right.

I hope you enjoy the rest of your weekend.

Best regards,
The StocksToday.com Editorial