“Don’t push too far—your dreams are China in your hand
Don’t wish too hard because they might come true and you won’t be able to handle them
You don’t know what you might have brought upon yourself
China in Your Hand”
–T’pau, China in Your Hand
The fall of Nvidia CEO Jensen Huang was prime material for the tabloids. Investors, however, are left with three major questions. First, to what extent is Nvidia’s revenue driven by China, through resellers? Second, what is the succession plan? And third, what about the mess of cross-shareholdings, supplier financing, and off-balance-sheet debt that has developed around Nvidia? Professional investors and analysts are taking a wait-and-see approach for now, with the stock trading more than 30 percent below its peak earlier this year, while small (retail) investors are buying up shares in droves.
To everyone’s surprise, the stock markets reacted calmly. Both the S&P 500 and the Nasdaq had a positive week, and European stock markets even closed at record highs. The tech sector saw three major trends. First, a rotation toward potential winners from the Nvidia debacle, including Alphabet and Broadcom. Second, a recovery of “fallen angels” such as Coreweave, following reassuring statements regarding financing, and with it, the semiconductor sector. And third, stabilization in the Mag-7, following a turbulent earnings season. Sentiment in the sector, however, remains fragile. Outside of tech, healthcare and (basic) consumer goods once again led the way, now joining energy as the best-performing sectors.
The reason for the calm in the stock markets—at least at the index level—is that there is little enthusiasm elsewhere. Bonds remain on the sidelines. In the U.S., the two-year yield jumped to 4.73% and the 10-year yield rebounded to 5% following a higher-than-expected inflation report. Hours before the data was released, Fed Governor Waller had said that a 50-basis-point hike “should be considered” if core inflation came in around 0.3%, adding that a hike of just 25 basis points would jeopardize the central bank’s credibility. The auction of $42 billion in 10-year bonds was sluggish, with about 10% left unsold by the banks—the highest level since May. In Europe, the economic slump in France and Belgium persists. Selling pressure on the EUR/USD pair continues.
There wasn't much to be gained in the commodities market either. Gold fell as interest rates rose. Industrial metals have been on a downward trend since the peak of the AI infrastructure trade. And oil continues to
Next week is going to be busy: Nvidia’s earnings on Tuesday, Anthropic’s IPO on Wednesday with a valuation of up to 1,400 billion dollars, and the monthly options expiration on Friday. Meanwhile, Europe is watching from the sidelines, with the Stoxx 600 at a record high and up 4.7% this quarter, compared to the S&P, which is down 0.4%. That’s no coincidence: those who aren’t playing the AI game won’t be affected when the market starts asking who’s footing the bill.
Disclaimer: This blog post is for informational purposes only and does not constitute investment advice, an offer, or a recommendation. Past performance is not a guarantee of future results.
