17.07.2026 - The AI Race - facing Reality
The global AI trade is facing its biggest reality check in months.
Asian equities declined alongside US equity futures as the sell-off in semiconductor stocks accelerated. Investors are increasingly questioning whether the enormous capital being invested in artificial intelligence can ultimately justify today's extreme valuations.
The latest trigger came from Chinese AI startup Moonshot, which unveiled its new Kimi K3 model. The company claims its model can compete with the latest offerings from OpenAI and Anthropic, reviving memories of last year's "DeepSeek moment." At the same time, Chinese President Xi Jinping appeared at the country's premier AI summit, highlighting how quickly Chinese AI developers are closing the technology gap with their US competitors.
The market reaction has been significant. The Philadelphia Semiconductor Index has now fallen more than 19% from its late-June record high and is heading for its worst week since March 2025. On Thursday, the index reached its lowest level in almost two months.
The correction has been even more pronounced in Asia. South Korea's KOSPI, widely seen as one of the purest public plays on AI hardware demand, has dropped roughly 25% since its June 18 peak (closed today).
Markets:
Equities: echnology leads another broad sell-off, with semiconductor stocks under heavy pressure. Nasdaq Futures are down around 2%.
Bonds: Little changed, US 10y yield around 4.52%, Japan 10y yield 2.71%
Commodities: Oil prices trading on their week highs, with WTI around USD 81/barrel and Brent around USD 87/barrel
Precious metals: remain under pressure, gold below USD 4’000/oz, silver trades near USD 55/oz
Currencies: no major moves
Cryptos: under pressure - Bitcoin falling back to USD 62k
Volatility: The VIX index climbs above 19
My View: Are investors finally beginning to reassess the AI story and recognize that this race may simply have gone too far for too long?
History repeatedly shows that when optimism reaches extreme levels, reality eventually returns. And it often does so brutally. Markets rarely unwind excess gradually. They usually overshoot in both directions.
The greatest risk remains with retail investors.
They are often the last to join a speculative boom, encouraged by banks, social media, headlines, and stories of effortless wealth. Unfortunately, they also tend to be the last to exit, usually after large losses have already been realized.
Today, many investors and finfluencers continue repeating the familiar message: "Buy the dip.""Stay patient.""Everything will soon be back to the moon." Perhaps they will be right one more time again.
But optimism in a speculative manner alone has never been an investment strategy.
Some investors and optimists describe the current decline as nothing more than a healthy consolidation. Others, with a more realistic perspective, see the beginning of a much deeper correction. At this stage, nobody knows which scenario will ultimately play out from this point.
What we do know is that valuations had reached extraordinary levels, expectations became increasingly unrealistic, and speculative behavior accelerated dramatically. Those are precisely the conditions that deserve caution.
At ETFMandate, I have been positioning my portfolio defensively for quite some time. You could argue that I was too early. That is also a fair observation. Timing the exact turning point of a speculative bubble is almost impossible.
However, for me, managing my own money, protecting capital has always been more important than participating in the final stage of market euphoria.
The past few trading days have been among the strongest periods of my 27 years of investment experience. That does not make me complacent, quite the opposite.
Markets remain extremely headline-driven. One unexpected announcement, one policy shift, or even a single social media post from President Trump could reverse sentiment within hours.
In the end, keeping reality in sight is the best way to achieve successful long-term investment results.
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