The Long and Short of it: An old war returns, and the chip trade meets its margin call

Thursday, 23 July 2026

Once again, the Strait of Hormuz is blockaded, with Saudi’s Red Sea route now under threat too; we are seeing a tech selloff; and in earnings season, a second straight quarter of 20%+ S&P500 profit growth is on the line, says Tim Chesterfield.

Tim Chesterfield is chief investment officer and director of PG Investments.

ANALYSIS: The June ceasefire between the United States and Iran has not held, and renewed US strikes in mid-July prompted Iran to close the Strait of Hormuz and Washington to reinstate its naval blockade of Iranian ports. With the route a chokepoint that carries approximately 20% of the world’s seaborne crude, its closure saw crude oil prices jump sharply, with Brent Crude currently trading at US$91, up from almost US$73 at the beginning of the month.

Whilst this is of limited surprise, a new development, and one hitherto only glanced over, is that Saudi Arabia’s usual escape route is now also under threat. Since Hormuz first closed earlier this year, the kingdom has rerouted approximately 70% of its normal volume overland by pipeline to terminals on the Red Sea coast, bypassing the strait altogether. However, Houthi forces in Yemen have now warned they may block shipments from that same route, which would remove this critical artery precisely when it is required.

Whether or not that threat is ultimately enforced, the mere possibility of both routes being contested at once presents significant risk to prices, global trade, inflation, and markets that have little to no reserves or production of their own.

It looks calm, but it isn’t

Anyone glancing at headline indices this month could be forgiven for thinking that all is well, especially in technology, with the much-followed S&P 500 index little moved over the month to date. However, this belies the unravelling of the technology sector, with the tech-heavy Nasdaq 100 down almost 4%.

Narrow that lens further, to the semiconductor and semiconductor equipment companies that supply the physical picks and shovels of the AI build-out, and the index is down almost 6%.

The spark for the selloff is open to debate, but the sharp rise in semiconductors and specifically memory have come under scrutiny and shone a spotlight on a specific piece of financial plumbing in South Korea, where retail investors had borrowed heavily against Samsung and SK Hynix shares to ride the semiconductor boom. When both stocks fell together, the loans, known as margin, were recalled, forcing investors to sell in a declining market.

It is a reminder that the leveraged investments in momentum-driven investments can present some hairy moves.

Elsewhere, the long-forgotten company PayPal garnered takeover interest that pushed its shares higher and showed that unloved businesses can have their day in the sun too. Prior to the interest emerging, the company had fallen by almost 40% over 12 months and remains a shadow of its heady growth days.

Meanwhile, after initially falling, Meta rose on news that it intends to sell its spare (old) computing capacity to other businesses rather than only using it internally and using its newer capacity for its own goals. Meta also launched its new open weight LLM (Large Language Model, which powers AI), which appears to have moved its initiative towards the frontier models and also plays into a broader discussion surrounding on premises AI computing – where a company runs its own hardware in a bid to lower cost and keep data sovereignty.

This earnings season matters more for tech than anywhere else

Second-quarter reporting is now underway, and the broad expectation is for a second consecutive quarter of profit growth above 20% across the S&P 500, an unusually strong result. For most sectors, that will provide the usual winners and losers and cause some churning in prices; however, for technology-related companies it will be pivotal.

This earnings season will effectively decide which version of the last fortnight is correct: the version where a strong sell-off is right, or one in which the party continues and the AI revolution is real and will result in rising profits and productivity and justify the return on investment that will support the spending already made.

Results from the companies actually building and buying this infrastructure, not only the ones supplying the picks and shovels, will show whether spending is converting into revenue at the pace markets have been assuming.

New Zealand investors holding growth or global equity funds carry meaningful exposure to this outcome, whether they think about it in those terms or not, and the coming weeks of reporting will matter more than most.

Disclaimer: Information provided in this publication is not personalised and does not take into account the particular financial situation, needs or goals of any person. Professional investment advice should be taken before making an investment.