Chips Bleed Out as Cloud and Crypto Catch the Bid

Dear readers,

The bear market we flagged yesterday has gotten worse, not better. The Philadelphia Semiconductor Index, which sat 20% below its June peak on Monday, has now widened that drawdown to nearly 24%. Even TSMC, which beat estimates outright, got sold anyway. That tells you this isn’t about any single earnings miss — it’s about a market that no longer believes chip demand is infinite, and is scrambling to figure out who actually wins from here.

The Money Moves to Cloud and Software

The proximate cause remains Moonshot AI’s Kimi K3, the Chinese model that does more with less compute and has forced investors to question whether hyperscaler capex budgets really do grow forever. UBS data now shows hedge funds cutting US tech exposure at the fastest clip in at least a decade. But this is a rotation, not a retreat. Capital is flowing toward the cloud infrastructure and software layers that sit between the chips and the end product — and Alibaba is the clearest beneficiary. Its US-listed shares have climbed roughly 27% since late June to $120.34, helped along by the fact that Alibaba owns about 36% of Moonshot AI and is expected to supply the cloud horsepower behind Kimi K3 itself. Citi and UBS analysts are now penciling in 45% revenue growth for Alibaba Cloud in the June quarter. Smaller US players are catching the same bid: DigitalOcean, recently trading near $119.09, is drawing fresh institutional interest as investors widen their search for AI infrastructure exposure beyond the chip names that dominated the first leg of this trade.

Crypto Holds Up — Washington Is the Real Story

Away from tech, digital assets are quietly proving sturdier than the headlines suggest. Bitcoin has pushed up to around $66,311, and Ethereum has added roughly 4% to trade near $1,941, supported by real flows: US spot Bitcoin ETFs have pulled in $600 million in net inflows over five straight days.

The more consequential story, though, is unfolding in the Senate. The CLARITY Act — the most consequential piece of crypto legislation the US has produced — has cleared the Senate Banking Committee and landed on the legislative calendar. No floor vote has been scheduled. No cloture motion has been filed. And three separate disputes still stand between the bill and the seven to nine Democratic votes it needs to clear a 60-vote filibuster. The thorniest of the three concerns insider trading and ethics disclosures, a fight sharpened by President Trump’s roughly $1.4 billion in crypto-related income during 2025. Prediction markets have marked the odds of passage down to about 43%, and analysts warn that if the bill misses the August recess deadline, its path through 2026 effectively closes. The legislation would split oversight between the SEC and CFTC and let crypto projects raise up to $50 million under simplified rules — a real prize for the industry if it happens. For now, treat it as a call option with an uncertain strike date, not a sure thing already priced in.

Oil, Hormuz, and a Fed That Isn’t Cutting

Should investors sell immediately? Or is it worth buying Ethereum?

The geopolitical backdrop keeps tightening the macro picture. The US-Iran confrontation, ignited by a drone strike on a cargo ship on June 25, is now heading into its fourth week, and shipping traffic is paying the price: Lloyd’s List Intelligence counted just 53 vessel transits through the Strait of Hormuz in the week through July 20, down 66% from 157 the week before. Brent crude touched a session high of $91.41 and is trading around $89.93.

That matters enormously for the Fed’s math. May’s CPI came in at 4.2% year over year, and the Fed’s preferred PCE gauge sits at 4.1% headline, 3.4% core — both far above target, and both moving in the wrong direction as energy costs rise. The market has repriced accordingly: nine of eighteen Fed officials now project at least one more hike this year, futures for the September meeting favor a hike over a hold, and the implied odds of a September cut have collapsed to just 5.5%. The dollar is reclaiming its safe-haven role, historically bad news for equity multiples. Energy stocks and oil ETCs remain the cleanest hedge against a conflict that shows no sign of resolving.

The Physical Bottleneck Behind the AI Boom

The scarcity story isn’t confined to oil. The IEA’s newly released Global Critical Minerals Outlook 2026 reads as a warning about how concentrated the supply chain for the AI buildout really is. Export controls and refining bottlenecks centered in China and Indonesia have sent cobalt prices up 130% following restrictions in the Congo, while tungsten has risen sixfold. As AI infrastructure moves deeper into optical networking and power delivery, the “pick-and-shovel” trade is migrating out of Silicon Valley chip labs and into mining, cable manufacturing, and grid equipment.

The Takeaway

The mega-cap hardware trade that defined the last two years is losing its grip, and what replaces it won’t be a single new winner but a wider field: cloud infrastructure, software, selectively resilient crypto assets, and the unglamorous physical suppliers of metals and cable. None of these carries the certainty investors got used to. Portfolios built for that old certainty need to be rebuilt for this messier, more selective one.

Best regards,
The StocksToday.com Editorial