On January 22, the Chinese stock market experienced a noticeable decline, primarily influenced by weaknesses in various heavyweight sectors, including liquor and renewable energyBy the end of the trading session, the Shanghai Composite Index stood at 3,213.62 points, reflecting a drop of 0.89%. Similarly, the Shenzhen Component Index closed at 10,225.87 points, down 0.77%, while the ChiNext index ended at 2,101.03 points, marking a 0.54% decreaseThe combined trading volume of the Shanghai and Shenzhen exchanges totaled 1.1358 trillion yuan, indicating a decrease of approximately 70 billion yuan compared to the previous day.

However, amidst the market fluctuations, the AI hardware sector has been on an impressive upward trajectorySince mid-January, AI hardware-related stocks, particularly those focused on high-speed copper connectors and liquid-cooled servers, have witnessed significant gains

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In a notable event on the same day, stocks associated with high-speed copper connections soared, with Huamai Technology achieving its fourth consecutive trading halt at the upper limit, while Xin Ya Electronics also capped outIndustrial Fulian, a leader in liquid-cooled servers, recorded a trading halt as well, amassing a transaction volume of 9.093 billion yuan throughout the day.

The ongoing competition between optical modules and copper cables in the AI technology landscape remains a topic of keen interestThis 'optical vscopper' dispute primarily arises from the inherent differences in technological characteristics, costs, and application scenariosFrom a technical perspective, optical modules boast features such as high bandwidth, low attenuation, and resilience against electromagnetic interference, which makes them suitable for long-distance, high-rate data transmissionConversely, copper cables are celebrated for their low power consumption, cost-effectiveness, and reliability over short-range connections.

This current surge in the copper cable segment can largely be attributed to recent support from Jensen Huang, the CEO of NVIDIA, who publicly endorsed copper technology in a recent statement

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He asserted, "We should continue utilizing copper technology as long as possibleIf needed, we can subsequently adopt silicon photonics technology, but I believe we’re still a few years away from that."

Despite the impressive short-term gains of certain stocks, the underlying trading risks merit investor attentionFollowing yesterday's trading session, Huamai Technology released a notice regarding unusual market fluctuations, emphasizing that its business currently revolves around communication infrastructure, which includes optical distribution frames, splitters, combiners, optical jumpers, and optical cablesThe statement highlighted that the company's latest rolling price-to-earnings ratio remains negative, significantly deviating from the industry average, and it cautioned investors to be mindful of secondary market trading risks.

The liquid cooling server segment is also gaining traction as a significant investment focus during the ongoing AI wave

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Research reports from Tianfeng Securities illustrate that as technologies such as AI gain widespread adoption, the quantity of data centers required to process such data is concurrently risingThe operational equipment within these data centers generates considerable heat, necessitating the implementation of cooling solutions to maintain operational efficiency and safety.

According to forecasts from IDC, the market size for liquid-cooled servers in China is projected to reach around 68.2 billion yuan from 2022 to 2027, boasting an impressive compound annual growth rate of 56%. Additionally, market research firm Global Market Insights predicts that the global liquid cooling market for data centers will experience phenomenal growth, expanding from over $2 billion in 2022 to over $12 billion by 2032.

Despite the recent market turbulence, analysts believe the A-share market is moving into a zone of high cost-effectiveness

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Over the first three trading days of this week, the A-share market displayed a sideways pattern, with the Shanghai Index recording three consecutive declines and trading volumes consolidating to their lowest levels since September of the previous yearSome institutional analysts suggest that the expectations for China's economic fundamentals are gradually improving, which may signal a return to an advantageous investment landscape.

Zhang Qiyao, Chief Strategy Analyst at Industrial Securities, noted that since the end of last year, the market experienced a round of adjustmentsHe argues that investors should adopt a more proactive stance as they prepare for a new upward trend in the period surrounding the Spring Festival.

In Zhang Qiyao's view, the ongoing recovery of China’s economic fundamentals, particularly as evidenced by the GDP growth targets set during the local Two Sessions, aligns closely with the 2024 expectations

Cities like Beijing, Shanghai, and Guangdong have demonstrated consistency in their goals, reflecting the government's continuing optimism and commitment to fostering economic growth in 2025. Furthermore, a reduction in external pressures is expected to help rebuild risk appetite.

In terms of investment strategies, Zhang suggests a phased focus on high-elasticity assetsSince the end of September 2024, the correlation between index performances and industry fundamentals has weakened significantly, leading to market behavior heavily influenced by liquidity and valuation recoveryThis scenario has unveiled a clear "barbell" investment approach, where risk appetite shifts towards smaller caps during periods of heightened risk enthusiasm and pivots towards dividend-paying stocks when prudence is more favorableAs uncertainties are progressively alleviated and a new surge begins, it is possible that risk appetite will once again gravitate towards high-elasticity sectors.