As the AI Rally Cools, This Sector Is Quietly Gaining Strength
Over the past month, the AI sector has shown signs of a major pullback. For example: SK Hynix, the memory chip giant, has plunged 40% from its peak; ARM has fallen 43% from its highs, and Japan’s NAND flash memory leader Kioxia has dropped 55%. $SK hynix(SKHY)$ $ARM Holdings(ARM)$
It is worth noting that Kioxia’s market capitalization once exceeded $368.2 billion, surpassing Toyota Motor by more than $100 billion in June this year and making it the largest company by market value in Japan.
However, in just one month, Kioxia’s market capitalization has evaporated by approximately $180 billion.
As the AI trade cools off, another sector is quietly gaining strength, biopharmaceuticals.
Over the past month, among all S&P 500 sectors, the best performers have been oil and gas, railroads, and healthcare. $S&P 500(.SPX)$
Oil & gas stocks have mainly benefited from the U.S.-Iran conflict, but the sustainability of this rally remains uncertain. Railroads, as a defensive sector, are also unlikely to continue leading the market for an extended period. However, healthcare is one of the few industries capable of achieving long-term growth through innovation.
Beyond the U.S. market, healthcare has emerged as the best-performing sector within the Bloomberg Emerging Markets Benchmark Index, and it has shown a negative correlation with technology stocks.
For example, over the past month, the Bloomberg Emerging Markets Healthcare Large & Mid Cap Price Return Index has risen against the trend while the Bloomberg Emerging Markets Technology Large & Mid-Cap Price Return Index has pulled back.
The Bloomberg Emerging Markets Healthcare Large & Mid Cap Price Return Index is primarily composed of Chinese companies, including BeOne medicines, WuXi Biologics, Innovent Biologics, Jiangsu Hengrui Pharmaceutical, and WuXi AppTec. $BEIGENE(06160)$ $WUXI BIO(02269)$ $INNOVENT BIO(01801)$ $Jiangsu Hengrui Pharmaceuticals Co.,Ltd.(600276)$
Meanwhile, the Bloomberg Emerging Markets Technology Large & Mid-Cap Index mainly holds Taiwan Semiconductor Manufacturing Company (TSMC), Samsung Electronics, and SK hynix. $Taiwan Semiconductor Manufacturing(TSM)$ $SK hynix(SKHY)$
China’s biopharmaceutical sector is rising rapidly, with a growing number of Chinese companies signing out-licensing agreements with overseas pharmaceutical companies.
For example, CSPC Innovation has surged 52% over the past month. The company is developing an RNA-based therapy for kidney disease and recently announced a deal with AstraZeneca, under which AstraZeneca agreed to pay up to $1.8 billion to acquire global rights to the therapy. $Cspc Innovation Pharmaceutical Co.,Ltd.(300765)$
Beyond CSPC Innovation, many other Chinese biopharmaceutical companies have announced out-licensing agreements this year, with the total deal value already exceeding the combined value recorded throughout 2025.
In terms of individual stock performance, Chinese biopharmaceutical stocks have significantly outperformed semiconductors.
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