Author: Chaoxiang Research
On Wednesday (U.S. Eastern Time, June 10th), Wall Street was caught in a simultaneous squeeze on two fronts: inflation returning to 4.2% and the escalating U.S.-Iran conflict. At the close, all three major indexes were near their intraday lows.
The Dow Jones Industrial Average plummeted by 953.33 points (-1.87%) to 49,918.78 points, losing the critical 50,000-point threshold. Just on June 4th, the Dow had hit a record high. In a week, the "safe haven" narrative for blue-chip stocks was shattered. The S&P 500 fell 1.62% to 7,266.99 points, and the Nasdaq Composite dropped 1.98% to 25,169.50 points, pulling back roughly 7% from its June 1st historical peak of 27,086.81 points. The Russell 2000 index fell only 1.10%, making it the best-performing major index for the day.
The VIX fear index surged 11.83% to 22.22, reclaiming the 20-point warning line.
Inflation and War: A New Chapter of an Old Script
The May CPI released in the morning showed a year-on-year increase of 4.2%, a three-year high, and a month-on-month increase of 0.5%. The numbers were ugly but in line with market expectations, and the core CPI rose only 0.2% month-on-month, below forecasts. The bond market's reaction told the whole story: the 10-year Treasury yield touched 4.55% intraday before falling back to 4.52%, essentially flat. In other words, the CPI alone wasn't enough to trigger this sell-off.
What truly ignited the selling was geopolitical news in the afternoon. After Iran shot down a U.S. Apache helicopter, the U.S. military conducted a "defensive strike" on Tuesday night, to which Iran responded with attacks on U.S. military facilities in Gulf countries including Bahrain, Jordan, and Kuwait. Trump posted on Truth Social that Iran "has stalled negotiations for too long and will now pay the price," stating America "will hit them very hard." As the news spread, sector after sector turned from green to red, with industrials down over 3%, and technology and materials sectors down over 2%.
WTI crude oil settled up 2.07% at $90.03 per barrel, while Brent crude rose 1.8% to $93.10. Oil prices and inflation fuel each other, a combination the market fears most: interest rate futures now fully price in a 25-basis-point rate hike by December. In 2026, the U.S. stock market faces a Fed discussing "rate hikes" rather than "rate cuts." This is the true Damocles' sword for valuations.
AI Giants Queue Up for Money
If macro factors are the background noise, the main theme of U.S. stocks this week is another story: the AI arms race burning cash has reached shareholders.
Super Micro Computer (SMCI) crashed 27.98% to $29.27 on Wednesday, its worst single-day drop. The trigger was the company's announcement of plans to raise up to $7 billion, including a $5 billion underwritten public offering and a $2 billion at-the-market offering, to procure components for fulfilling customer orders. For a company making AI servers, receiving so many orders that it needs to dilute nearly one-third of its market cap to fund the working capital? The market did the math quickly.
The Philadelphia semiconductor supply chain suffered across the board: Broadcom down 5.12%, TSMC down 4.44%, NVIDIA down 3.73%, Micron down 4.70%, Tesla down 3.80%. Apple bucked the trend with a modest 0.35% gain, for a straightforward reason: among the "Magnificent Seven," it carries the lightest capex burden.
After hours, the real protagonist took the stage. Oracle's Q4 earnings report was nearly flawless: revenue of $19.2 billion, up 21% YoY, beating expectations; non-GAAP EPS of $2.11, above the expected $1.97; Remaining Performance Obligations (RPO) surged by a staggering $85 billion in the quarter, from $553 billion to $638 billion. Yet the stock plunged over 7% in after-hours trading.
The reasons lie in three other numbers: cloud revenue missed expectations; Fiscal 2026 free cash flow was negative $23.7 billion; and the company announced plans to raise approximately $40 billion through a combination of equity and debt to fund data center construction. Just two months ago, the company laid off 30,000 employees.
Putting this week's clues together: Alphabet seeking $85 billion in financing, Super Micro raising $7 billion, Oracle borrowing another $40 billion. The AI narrative is shifting from "how big are the orders" to "where does the money come from." The market once cheered for every dollar of RPO; now it's questioning the payback period for every dollar of capital expenditure. Oracle's $638 billion order book and negative $23.7 billion in cash flow sit on the same balance sheet, embodying the entire contradiction of the AI trade in June 2026.
Where Did the Money Go?
The selling was not indiscriminate. Coca-Cola and TJX hit all-time highs on Wednesday against the trend, with Morgan Stanley naming Coca-Cola its top pick in the sector that same day. Selling AI hardware, buying companies that sell sugary drinks and discount clothing—the capital flight to safety is almost brutally clear. The Russell 2000's smaller decline also confirms this: small-cap stocks largely missed the AI party and thus carry the lightest baggage in the pullback.
The selling pressure also spread to Asia: South Korea's KOSPI plunged 4.5%, led by Samsung Electronics and SK Hynix; Japan's Nikkei 225 fell 1.9%, with SoftBank Group down 8.3%. The deleveraging of the AI supply chain is global.
In the view of Chaoxiang Research, the nature of this decline is more akin to a resonance between the "AI credit cycle" and the "geopolitical inflation cycle," rather than a single-event shock. The former determines whether the capital expenditures of tech stocks can continue to be funded by the capital markets, while the latter dictates the direction of the risk-free rate. Both lines worsened simultaneously this week, which is the fundamental reason for the Nasdaq's persistent bleeding since June 5th.
To play devil's advocate: within the CPI details, core inflation rose only 0.2% month-on-month, and the energy shock hasn't significantly spilled over into services prices; Oracle's cloud infrastructure revenue growth is still a robust 93%, indicating real demand; historically, after escalations in Middle East conflicts, risk asset pullbacks have often recovered within weeks. If Thursday's PPI is moderate, coupled with any sign of de-escalation in the Iran situation, an oversold bounce could appear at any time.
However, one change is structural: AI giants have moved from "using profits to build data centers" to "using equity and debt to build data centers." Once this step is taken, it's hard to reverse. When the financing market begins to price risk premiums for AI capital expenditures, the valuation anchor shifts.
The next test comes on Thursday: the PPI data and the market's digestion of Oracle management's guidance for fiscal year 2027. The order book or the cash flow—which one will Wall Street ultimately believe?
