Sell the rallies, buy the rotation

For weeks the market had been shifting from buying every dip to selling the rallies, and last week that shift hardened into something more decisive. The AI and semiconductor leaders that carried the market all year came off despite reporting good numbers. TSMC, the world's dominant contract chipmaker, delivered a record quarter with margins ahead of guidance and full-year growth lifted above 40%, yet the shares fell 7%. The memory chip names gave back more than 20% from their highs after reports emerged of a Chinese DRAM manufacturer scaling up capacity, reigniting fears of oversupply in a market that had been priced for perpetual shortage. And IBM crashed around 25% in a single session, its worst day since 1987, after guidance made clear that clients are diverting budgets away from legacy enterprise software and into building their own AI, the clearest proof yet that the SaaSpocalypse's fear is becoming real.

When blowout numbers are met with selling, the good news is already in the price. But the right question is not whether this is a dip or the top. Even on the ugliest days last week, the equal-weighted S&P 500, which strips out the distortion of mega-cap tech weighting, closed at a fresh all-time high. That is rotation, not collapse. The money is not leaving the market, it is moving within it: energy stocks led the tape as renewed Strait of Hormuz tensions lifted oil prices, and the flows leaving crowded semiconductor positions found a home in neglected Chinese internet names and biotech infrastructure plays.

The real opportunity sits in the second tier: names whose stories are only just beginning but got swept into the broader semiconductor euphoria early, ran up ahead of their own earnings and are now pulling back while the underlying fundamentals hold.

Meanwhile, a proposed US law called the MATCH Act could bar Western equipment makers like ASML from servicing the lithography machines they have already sold into China. Every such restriction only accelerates Beijing's push to fund its own chipmakers and AI domestically. Cheap Chinese AI models are quietly taking share the way China once did in solar panels and electric vehicles, and that state-backed reshoring is broadening the opportunity across the whole Chinese technology stack.

What Drove The Collective Ideas Last Week

Collective Conviction Ideas: -3% WoW

The Conviction baskets pulled back last week as the broader tech and semiconductor sell-off dragged the AI infrastructure and physical-sensing names lower. The upside came from two corners: real assets, where a takeover approach in the logistics and data-centre space continued to firm ahead of a regulatory deadline, and European defence and sovereign technology, where fresh mandates in quantum-resistant communications and allied infrastructure rebuilding kept the compounding story intact. The downside was concentrated in physical-AI sensing, caught in the rout and weighed further by insider selling and the lingering dilution from a recent capital raise, and in mining equipment, where a high-quality quarter that beat on revenue but missed on orders against a high valuation bar was enough to take the stock lower. After two strong years the book stays deliberately conservative and diversified, and the lean remains into the rotation away from the crowded trades.

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China's Frontier AI Optionality

Tencent (0700 HK) is building exposure to the next phase of the AI race through its stake in Moonshot AI, the Beijing-based lab behind the Kimi model series. The company owns at least a fifth of the business, giving it direct financial exposure to Moonshot's progress alongside its own internal AI efforts.

Moonshot is preparing to launch Kimi K3, an open-weight model reportedly built with around 2.8 trillion parameters and designed to compete with the strongest coding and reasoning systems from OpenAI and Anthropic. If the performance matches the claims, it would underline how quickly Chinese labs are closing the gap at the frontier.

For Tencent, the value is in the optionality. Its gaming, advertising, cloud and platform businesses already provide a powerful distribution base, while Moonshot offers another route into frontier model development. If Chinese open-weight AI continues to gain ground, Tencent is positioned to benefit from both the applications and the intelligence beneath them.

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