September is poised to be a decisive period for the technology sector, according to a strategy note from a leading research team. After a strong August recovery led by tech stocks, rising long-term US Treasury yields have once again become the key pricing anchor for global assets, casting doubt on whether the equity market, particularly tech, can sustain its momentum. The recent volatility in global tech shares is attributed to two main factors: the rapid ascent of long-dated overseas bond yields and disappointment over Anthropic's latest annualized recurring revenue (ARR) figures. However, these concerns are expected to begin easing from mid-to-late September, opening a crucial window for the tech sector.

The recent surge in long-term US Treasury yields stems from a mix of short-term variables, such as rising inflation expectations driven by higher oil prices and seasonal patterns that boost term premiums, alongside longer-term structural factors like increased government debt supply and bond issuance by AI companies. The short-term pressures, including oil prices and inflation expectations, are likely to moderate starting in September. With the US Strategic Petroleum Reserve depleted, there is increased pressure to resolve crude supply-demand imbalances. Additionally, as midterm elections heat up, political incentives are growing to stabilize oil prices, which could ease inflation concerns. The rapid rise in interest rates may also compel a more accommodative Federal Reserve, with recent weakness in employment, inflation, and consumption data signaling a slowdown in the US economy's underlying strength. The market's self-imposed tightening of financial conditions via higher long-end yields reduces the necessity for further Fed rate hikes. Historical data shows the Fed has never made hawkish policy shifts in the second half of election years, particularly in October and November. Therefore, with oil prices expected to retreat and a repricing of rate expectations, US long-term yields could peak and decline by September or October, providing the tech sector with a second wave of support from improving macro liquidity.

For tech stocks, this would mark the second instance of denominator-side support, following the easing of micro liquidity pressures in July, and could help rebuild consensus for the rally. Key events to watch include the Jackson Hole symposium next week, the release of the latest inflation and employment data in late August or early September, and the FOMC meeting in mid-September. Concerns over Anthropic's ARR miss are also likely to dissipate as its IPO approaches. Polymarket pricing suggests an 82% probability of Anthropic going public by the end of October. Under SEC rules, the company must publicly file its prospectus at least 15 days before roadshows begin, which should clarify its ARR calculation and financials, alleviating recent worries. As these issues unwind, the stage is set for a pivotal victory window for the tech sector starting in September.

In the medium to long term, the fundamental drivers of earnings and industry trends remain the core for the AI rally, even as structural factors like fiscal expansion and AI-related bond issuance push global interest rates higher. A higher US Treasury yield environment primarily impacts equity valuations through the denominator. Historically, when a major industry trend is underway, robust earnings growth in the numerator can offset the drag from rising risk-free rates. Examples include the late-1990s tech boom, where the Fed's rate hikes didn't end the rally, and the 2021 new energy sector, which thrived despite rising yields and tightening liquidity. This year, the market has adapted to a tighter macro liquidity environment, shifting the primary pricing focus to earnings. A decomposition of gains across major tech markets and A-share tech growth industries shows that earnings, not valuations, have been the main contributor to the rally, with valuations often acting as a drag. Therefore, despite a potentially higher interest rate ceiling, the sustainability of the AI rally hinges on continued strength in earnings and industry trends.

On allocation, the focus should remain on sectors with strong earnings momentum. After a period of valuation and positioning digestion, the earnings beta has returned since August, restoring the support for stock prices. With global interest rates elevated, the market will increasingly concentrate on sectors with clear earnings visibility. The coming weeks bring a dense schedule of A-share interim earnings reports and overseas tech earnings, which will be critical for validation. However, following the recent "rebalancing," the market is discovering and recognizing a broader set of earnings opportunities, leading to a wider pricing range. High-quality hard-tech assets are still expected to lead the market's recovery. Within this, attention should stay on the North American computing power chain, including optical modules, PCBs, and fiber optic cables, which have led the recovery and still offer attractive risk-reward. Additionally, investors should watch for other earnings opportunities not yet fully priced, such as non-ferrous metals, upstream AI equipment, innovative drugs, new energy (battery storage, power grids), and oversold upstream AI materials like fiberglass and minor metals in the resources sector.

Key risks to monitor include economic data fluctuations, policy easing falling short of expectations, the Fed's rate cuts underperforming forecasts, and geopolitical escalations.