Last week was a painful one for the technology industry, the tech-heavy NASDAQ plunged
4.5%. Semiconductor stocks led the way down. Even better-than-expected quarterly
results from companies like ASML Holding N.V. (ASML) and Taiwan Semiconductor
Manufacturing Company Limited (TSM) could not stop the bloodbath.

A lot of the pressure came from overseas, especially the South Korean stock market.

South Korea’s Kospi index fell more than 20% in seven trading sessions. South Korean
memory stocks were taking it on the chin, as investors feared Chinese memory companies
would flood the market with chips. So, all the speculative trades and leveraged ETF bets on
memory stocks created a lot of forced selling.

SK Hynix and Samsung Electronics led the way lower, but companies like Micron
Technology, Inc. (MU) and Seagate Technology Holdings plc (STX) were not spared in the
selloff.

It’s clear that some are concerned about how long the AI trade can last. The massive
amounts tech companies are spending on AI continue to be a major concern, especially
with rising interest rates. And last week’s inflation data did little to ease these concerns.
The Consumer Price Index (CPI) rose 0.6% in September and was up 3.7% in the past 12
months. Economists expected a 0.6% monthly rise and a 3.6% yearly gain. Skyrocketing
energy prices drove inflation higher. The energy index surged 5.2% last month, fueled by a
9.1% surge in gasoline prices. Core CPI, which excludes food and energy, only increased
0.3% in September and was up 2.6% over the past 12 months. However, that was higher
than economists’ expectations for a 0.2% monthly rise and a 2.5% yearly gain.

The Producer Price Index (PPI) rose 1.3% in September. Wholesale inflation also rose 6.3%
in the past 12 months, up from 5.6% in August. Economists only expected a 0.5% monthly
rise. Core PPI, which excludes food and energy, rose 0.7% in September and 5% over the
past year. That was more than double estimates for only a 0.3% monthly rise.

The red-hot inflation data sparked fears that the Federal Reserve will continue raising
rates, with another hike possible at its October meeting next week. However, the odds of a
rate hike next week are very slim. The Fed does not want to raise interest rates ahead of the
midterm elections. Most folks agree. The CME FedWatch tool shows an 82.8% chance that
the Fed will hold rates steady, compared with a 17.2% chance that it will raise rates.

However, a rate hike in December is still on the table – and that’s a concern for technology
companies with heavy debt loads. Higher rates make borrowing more expensive. And for
companies with a lot of debt, those costs can hurt sales and profits.

But what we need to remember is that companies are investing in their future.

AI demand is accelerating and continues to outstrip supply. Technology companies have
huge and growing order backlogs; ASML even noted that its orders extend through 2028.
And the memory shortage is anticipated to persist for the next few years.

So, the millions of dollars dedicated to AI will ultimately add to a company’s top and
bottom lines – and that will help offset higher interest rates. We’re going to see that play
out time and time again this earnings season.

ASML and TSMC kicked off the third-quarter earnings season on the right foot for us. Both
companies reported increased demand for their products. As a result, both raised their
outlooks for fiscal year 2026. We expect much of the same from the rest of our portfolio.

Many of the positions in our portfolio have superior fundamentals and earnings growth and
56.5% with advancing sales growth. The analyst community has also continued to revise
earnings estimates higher.

We fully expect positive earnings results to drop kick and drive our portfolio higher in the
coming weeks. So, we encourage you not to be distracted by the naysayers on Wall Street.
We’re in the midst of another stunning quarterly earnings season, and fundamentally
superior stocks will bounce back strongly.

We are more than happy to discuss this with you as it relates to your accounts and over-all
situation.

Sincerely,
The Advisors of Bane O’Leary, LLC