Chipwreck & the Global Crosscurrents

30.06.2026

In this episode of SB Talks, CEO Vincent O’Neill sits down with CIO Nick Ryder to unpack the market’s latest “chipwreck” as high-flying semiconductor stocks hit a patch of turbulence after a record-breaking run. They explore what is driving the AI investment boom, why chip makers are thriving while tech giants face growing scrutiny over spending, and whether the market is due for a reality check. The conversation also turns to stubborn inflation, central banks keeping investors on their toes, and what a more unpredictable Federal Reserve could mean for markets.

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Transcript

Vincent: Welcome to SB Talks, today is Tuesday, June 30^th, I am Vincent O’Neill, and I am joined as ever by our trusty chief investment officer, Nick Ryder. Welcome, Nick.

Nick: Thank you, Vinny.

Vincent: Now today Nick and I will be discussing the recent volatility in the semiconductor index, the outlook for inflation and central banks across the globe, as well as the latest developments on movements in the Strait of Hormuz. Welcome to all our listeners and happy EOFY to all.

Let’s open by talking about the semiconductor index. Last week, headlines grabbed quite choppy trading for chip makers. Tell us what was happening there, and what were the triggers?

Nick: Yeah, I think it was a bit of a sort of rotation, that it was obviously had a very strong run. Bloomberg coined the term chipwreck, which I thought was funny. But we’ve had the Philadelphia Semiconductor Index rise 94% year to date, and the KOSPI, which is the Korean stock exchange, which is dominated by Samsung and SK Hynix, both chip makers, that’s up 95% year to date, even after the pullback from last week. So, it’s been a very strong run for chip makers.

Vincent: Potentially due a bit of a breather.

Nick: Yeah, and by all reports, there’s a bit of speculative money that’s started to come into those markets, people buying leveraged ETFs in Korea and potentially also in the US, so it’s become a bit of a momentum trade. So, not surprising, we’re getting a little bit of a pullback. We did have Micron report last week, pretty good earnings, very good earnings in fact, they’re up 300% year to date. They’re a memory chip maker, and SanDisk, they’re up about 800% year to date. So, you know, what we’re seeing, I guess, is people saying, “Well, we’re unsure really how this AI trade’s going to play out,” but it’s clear that the chip makers are the primary beneficiaries at least at this stage.

 Vincent: And the market has anointed them not as such, at least in the first wave of this investment then.

Nick: Yeah, so, I described the performance of chip stocks, at the same time, the Magnificent Seven, which we’ve been talking about for many years, they’re actually down year to date, down about 4%, so they’ve underperformed as there’s been concern about the amount of capital expenditure they’re undertaking the amount of debt they’re issuing.

 Vincent: And the potential return on investment.

Nick: The return on investment and free cashflow. I mean, the five hyperscalers Microsoft, Oracle, Meta, Alphabet, and Amazon, they’ve gone from generating around $200 billion a year in free cashflow. That’s cashflow that they earn from profits after capital expenditures.

 Vincent: And struggling to know what to spend it on.

Nick: They’re going to go negative projected over the next year, so negative free cashflow. And these are companies that bought back a lot of their own shares, reduced their share count, paid dividends, and now, they’re cashflow negative.

Vincent: A big, huge transformation to their model. So, they were sort of non-capital intensive businesses, huge free cashflow, as you said, massive cash stockpiles that they didn’t know what to do with and buying back stock on it, and now suddenly they’re very capital intensive businesses.

Now, the chip makers are theoretically your beneficiaries of that because when we’re out building the data centres and we need to populate them with chips and other things, and that’s what’s driven the market so far this year. It’s been all in on the chip makers who are the beneficiaries of this wave of money, and a little bit more caution around the spenders of that in terms of where the return’s going to come from.

Nick: Yeah, absolutely and particularly if you think, you know, some of these capital investments they’re making in chips, what’s the useful life of those? Mm-hmm. One person’s, capital expenditure is another person’s sales, in a way. So, you’re getting, chips that maybe only have a useful life of a few years, and that’s going to impact their earnings of the hyperscalers going forward.

Vincent: Well, how are those investors, those companies that are buying those chips, how are they currently accounting for them or how are they what is the, I guess the most common analysis or assumption around their useful life?

Nick: Most of them have pushed out their depreciation schedule to six to seven years, and we know these chips, if they’re used intensively in data centres, probably don’t have that life. So there’s a bit of scepticism around that and the accounting treatment. But for now, the market I guess there’s this rotation going on from the sort of hyperscalers to the chip makers. Interestingly, Micron used to be in the value index. It was very much seen as a commodity producer of semiconductors, very cyclical industry. Got recently moved into the Russell Growth Index, as did, SanDisk and as did Caterpillar, which is also a maker of heavy equipment.

Vincent: So having previously been perceived fairly boring value.

Nick: Boring value, commodity type, cyclical commodity producer type stocks and now growth stocks.

Vincent: Very interesting. That’s an extension of the AI spending boom and then very much getting to be part of it, and I guess that’s just where we’re at on the AI journey right now. So, market’s enjoying it, but perhaps just taking a check yourself type moment over the last couple of weeks, which has got to be a healthy thing.

Nick: Yeah, definitely.

Vincent: Quite a bit of attention over the last couple of weeks as well around just where inflation is trending worldwide. We know we’ve had the Iran conflict and sort of potential concerns there, but it’s coming off the back of already some inflationary pressures popping up and what are we seeing, and equally important, how are central banks thinking about the outlook?

Nick: Yeah, so we’ve had the US print its inflation figures, the PCE, the personal consumption expenditure. Core PCE is what the Fed traditionally looked at as its measure of sort of core inflation. That came in at, uh, 3.4% year-on-year, certainly well above the Fed’s 2% target. And in Australia, similar number actually, 3.6 year-on-year for May’s trimmed mean inflation. So, headline’s a bit higher, about four in both countries, and core around that three and a half.

So pretty similar actually. And both central banks continued to kind of talk tough, I guess, the RBA has moved three times. We had, since the last podcast, they’ve met, no real changes there. They continue to talk tough, although, most economists have sort of dialled back their their views around further rate hikes given what’s going on in the property market and given the sort of the impact we’re seeing in the economy.

Vincent: So, I guess an acknowledgement there that those potential weaknesses or clouds over the property market are sort of maybe dampening consumer spirits and therefore doing some of the RBA’s work for them.

Nick: Yeah, yeah. We’re seeing a what we’d call a tightening of financial conditions there. And so, potentially doing some of the, the RBA’s work for them. Although they continue to kind of talk tough, they don’t want the market suddenly pivoting to expecting rate cuts anytime soon.

Vincent: That’s their job, right? The tough talk is part of the gig, I suppose. And, managing expectations. And I guess they don’t. As we’ve talked about, interest rates is a pretty blunt measure as well, so if there’s other ways that they can perhaps let some tension out of the system, then they’ll be happy to do that.

Nick: Yeah. Interestingly, over in the US, the Fed’s doing the opposite. They’re trying to get rid of forward guidance. So new chair Kevin Warsh, came out the first sort of meeting he’s chaired, and the post-meeting statement had just 131 words, the bare minimum. Whereas typically the Fed would give a bit of guidance as to what their next move might be, where their policy bias might lie, and they’ve removed that.

 Vincent: You wrote on our SB news on Friday about Kevin Warsh and drawing some parallels with the very highly thought of Alan Greenspan.

Nick: The, the maestro?

Vincent: Yes. And again, comments and thoughts around I guess, managing market expectations and guidance and things like that.

Nick: Yeah. So, the Greenspan era, well, at least most of it, was characterised by him really saying nothing. So, it was a bit of a word salad after, when he would address the market, not really give too much away.

Vincent: Conscious effort not to give much away.

Nick: Conscious effort. That changed a little bit towards the end of his term. He did bring in more transparency around kind of how they thought about things. But Kevin Warsh is very much in that sort of Alan Greenspan mould. He thinks that forward guidance and dot plots and things like that are not particularly useful, and maybe sort of handcuffs the Fed to act in a certain way rather than to react to the data as it comes in.

 Vincent: That they might have somewhat painted themselves into a corner and feel the need to act because of prior statements.

Nick: Yeah, that’s right. So, he’s sort of walking away from that. And so, we’re going to get a very different kind of Fed, and potentially a bit more volatility around Fed meetings and how the market perceives what the Fed might do.

Vincent: When it’s saying less, trying to jump on those small crumbs of guidance that they’re giving them. And in terms of the broader outlook and expectations around where the Fed might go from here?

Nick: It’s definitely on hold, the market is pricing a rate rise. I think there’s one fully priced by October, so they see the next move is up, given where inflation is, as we’ve just discussed. We actually do have the annual central bank get-together in Sintra, Portugal this week. We’ll get Kevin Warsh, he’s on a panel with some other major central bankers such as Christine Lagarde this week. So maybe we’ll get something out of him. Unlikely, but it will be interesting to see what his take is on things at that meeting.

Vincent: But expectations of cuts have well and truly been dumped in the last month by a variety of factors.

Nick: Oh absolutely. And we’ve also had other news, recently that the Supreme Court has blocked the removal of Fed Governor Lisa Cook. That’s another probably helpful for Fed independence and to some extent probably makes Kevin Warsh’s job a bit easier if he’s got more of a free run and more an independent Fed, so he can mould it into his own views rather than being seen as a sock puppet for the Trump administration.

Vincent: Yeah, you’d think ideally, hopefully a bit more stable there when you’re seeing potential Fed members, under certain prosecutions and things of that nature. That matter is not completely resolved, but the Supreme Court there have certainly ruled that it needs to be considered by the lower courts first before it ever could get pushed up to them. So, on it rumbles, but it’s interesting. Of the series of verdicts that were provided by the Supreme Court over the last few days before their summer break, several going against Trump as well, so, in a quite a strongly conservative court.

Nick: Yeah, I mean, he’s still given free rein to fire other officials such as the Democrat appointee at the Federal Trade Commission, which was one of the cases that had been before the Supreme Court.

 Vincent: Rebecca Slaughter, I believe.

Nick: Yeah.

Vincent: So, on that goes. Last time we recorded, the US and Iran had just sort of settlement, settled on their ceasefire agreement. Couple of weeks on, limited progress. Few steps forward, few steps back, but there does appear to have been some movement certainly in the Strait of Hormuz, albeit still conflict over that too.

Nick: Yeah, I think it remains unclear as to whether we’ll get back to the sort of Strait of Hormuz that we had pre-conflict which was, the free flow, free movement of ships through there without tolls and without, Iran attacking them. We know that the 60-day ceasefire is meant to allow no tolls, but it’s unclear what happens after that. And certainly, the actions in the last few days have suggested that Iran still want to exhort a fair degree of control over ships going through and which particular route they take.

Vincent: A recognition that’s their main leverage in this whole conflict. And while they’re still at the negotiating table, they’re going to be pretty reticent to give that up.

Nick: Yeah, it remains to be seen what happens there. And I think we have seen a few more ships go through, but certainly nothing like what was, 130 ships a day that we saw pre-conflict. So, it’s still a risk, I guess.

Vincent: Yeah. Yeah, it’s certainly not a resolved situation by any stretch of the imagination. Any other items?

An excellent summary as always, Nick. Thank you very much, and thank you to you, our listeners.

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