The JPMorgan view rests on positioning, so the key test is whether selling dries up even as headlines stay negative. A day of heavy chip losses that is not followed by more forced selling would support the argument. Momentum-driven traders such as commodity trading advisers can flip from sellers to buyers quickly once trends stabilise, which can make rebounds sharp. In credit, CoreWeave’s bonds and default-protection costs are the clearest real-time measure of neocloud funding stress, and any spread into the debt of larger technology issuers would challenge JPMorgan’s view that the problem can be contained. Higher bond yields and oil prices above $110 add a macro headwind, raising financing costs for capital-heavy AI infrastructure at the same time.---Earlier:investingLive Americas FX news wrap 22 Oct: Nasdaq sinks as AI worries bite; Treasury yields tumble---JPMorgan argues the forced selling in chip stocks is largely done, but Thursday’s semiconductor rout immediately put that positioning call to the test.Summary:JPMorgan strategist Nikolaos Panigirtzoglou says the equity exposure of hedge funds has dropped far enough to suggest limited further downside for stocks.His team found that hedge fund equity performance closely tracks semiconductor shares, and that tight risk limits made recent chip losses worse by forcing funds to cut positions.JPMorgan sees funding concerns around neoclouds as manageable. It notes that neocloud capex of about $80 billion is small against roughly $1.8 trillion of total tech spending this year, and that the tech sector has a financing surplus of about $400 billion.Information technology makes up 28% of the MSCI All Country World Index but takes 40% of hedge fund risk capital. For semiconductors, the figures are 13% and 21%.The note was published Wednesday. On Thursday the Philadelphia semiconductor index fell almost 7%, its biggest daily drop since June, and the Nasdaq lost more than 2.5%.JPMorgan believes the sell-off in global stocks may be nearing its limit, because hedge funds have already cut much of their equity exposure. However, the bank’s argument faced an immediate test when chip stocks posted their worst session in four months a day after the note was published.In a flows and liquidity note published on Wednesday and reported by Dow Jones MarketWatch, global markets strategist Nikolaos Panigirtzoglou found a close link between the equity performance of hedge funds and semiconductor shares, as tracked by VanEck’s SMH chip ETF. The two moved closely together during the sector’s rally in the second quarter. When chips began to fall, tight risk limits forced funds to cut positions, which made the decline worse than it would otherwise have been.The scale of that de-risking is central to JPMorgan’s view. The team believes much of the long positioning in the sector has now been unwound, including by momentum-driven investors such as commodity trading advisers, who account for a large share of daily trading. The strategists acknowledge that short-term headwinds remain, but argue that the positioning adjustment should help limit further losses.The note also addressed concerns about neoclouds, the specialist providers that rent computing power for AI workloads. Their funding has come under scrutiny after troubles at CoreWeave and a poorly received IPO in South Korea. JPMorgan does not see those problems derailing the AI investment cycle. It argues that demand for computing power is strong enough for providers to pass higher financing costs on to customers. It also notes that neocloud capex of about $80 billion this year is small compared with roughly $1.8 trillion of total tech capex, meaning larger hyperscalers with better access to funding could absorb any shortfall. And it points out that the broader tech sector is generating about $400 billion more in cash flow than it spends on capex this year.The strongest message in the note is about how much influence chip stocks have. Information technology accounts for 28% of the MSCI All Country World Index by market value, but 40% of the risk capital that hedge funds deploy. For semiconductors, the gap is 13% of index weight against 21% of risk capital. In JPMorgan’s view, that makes chipmakers the best single gauge of global risk appetite, because a move in the sector affects a much larger share of investor capital than its index weight suggests.That sensitivity was clear on Thursday. The Philadelphia semiconductor index plunged nearly 7%, its biggest daily fall since late June, and the Nasdaq dropped more than 2.5%, its steepest decline since early June, according to Reuters. The trigger was a batch of AI-related earnings that renewed concern about spending. A supply warning from chip equipment maker Lam Research and a CoreWeave downgrade added to the pressure.Not everyone shares JPMorgan’s calm on neocloud funding. Unsecured debt yields at CoreWeave have climbed to around 15%, a level usually associated with financial distress. HSBC has warned of structural concerns across the neocloud sector, while Goldman Sachs argues that CoreWeave’s reliance on asset-backed financing limits the rise in its borrowing costs.The next few sessions should show whether Thursday’s slide was a final burst of forced selling or the start of a new leg lower. If the chips trade stabilises without further heavy de-risking, JPMorgan’s positioning call will look well timed. If funding stress spreads beyond the weakest neocloud balance sheets, the cash-flow cushion the bank highlights is likely to be tested. This article was written by Eamonn Sheridan at investinglive.com.