U.S. stock markets turn 2.15% lower after Nasdaq 2.58% gain on Nvidia earnings interpretation

11/21 U.S. stock markets turn 2.15% lower after Nasdaq 2.58% gain on Nvidia earnings interpretation

The Nasdaq once surged 2.6 percent, reflecting the expectations of the AI industry after Nvidia (-2.97 percent). However, sales have been held due to unstable job market, continuous controversy over profitability of hyperscalers from Nvidia’s performance, and Fed director Cook’s mention of high asset value. As a result, the market eventually turned downward due to supply and demand factors such as CTA funds ahead of the option expiration. In addition, Walmart (+6.46%) caused anxiety over the economy by saying that low-income people have controlled spending and high-income people have shifted their spending from high-priced to Walmart (Dow -0.84 percent, Nasdaq -2.15%, S&P 500 -1.55% and Russell 2000 -1.82 percent, Philadelphia Semiconductor Index -4.77 percent)

*Factors to Change: Nvidia And Monetization, Concerns Over K-Shaped Consumption, Cook’s Remarks And Options Expired

The phrase that became a hot topic in Nvidia’s (-2.97%) earnings announcement the previous day was the “AI virtuous cycle” structure. This means that when Nvidia supplies AI chips, Hyperscaler purchases them to build AI infrastructure, which develops new AI services and provides them to users. This means a cycle of reinvesting in the purchase of Nvidia chips when profitable. However, as investment banks such as JPMorgan have pointed out, the profitability controversy of hyperscalers, a key link in this virtuous cycle structure, has not been resolved. In other words, if monetization corresponding to enormous capital expenditures does not proceed, a fundamental weakness that does not establish a virtuous cycle structure itself is highlighted

Concerns over a delay in monetization of Hyperscaler flow through Nvidia’s growing accounts receivable. The larger-than-expected increase in accounts receivable in this earnings release suggests that Nvidia’s sales have been solid, but that major customers are increasingly relying on credit instead of cash. This shows that the rate of revenue generation through the AI infrastructure is not fast enough compared to the rate at which it is building. If this monetization is sluggish, the pace of infrastructure investment can be conservatively adjusted. This is a structural risk that raises doubts about Nvidia’s future performance retention.

Meanwhile, the recent drop in guidance from eBay (-1.51%) and Target (-2.79%), which represents middle-class consumption, clearly suggested a slump in the end-of-year shopping season, suggesting a fixation of a “recession consumption pattern.” Walmart’s positive performance (+6.46 percent) proves its structural risks. Walmart posted strong sales results because middle-class consumers and high-income consumers moved to Walmart to buy necessities. This indicates that most consumers are closing their wallets as the polarization phenomenon is spreading to the upper class.

The instability in the consumer market is deepened by details of the delayed September non-farm payrolls report. Although the headline number (up 1190,000) topped market expectations (+50 million), the numbers were revised down sharply last month, education and healthcare, which are not directly related to the economy, and government sectors drove employment, unemployment (up to 4.4 percent) and hourly wage growth (slowing down to 0.2 percent). Slower wage growth, in particular, could weaken expectations of improved purchasing power for households, further accelerating the contraction in consumption. More than 27 weeks of long-term unemployment are still higher than in the past, indicating that the foundation for the job market that should support consumption remains unstable. It is also a psychological contraction

In the meantime, Fed Director Cook said the value of assets such as stocks, corporate bonds, housing and leveraged loans is higher than the historical average, and warned that private equity loans, which have doubled in the past five years, could cause widespread financial system instability. These overvalued and uncertainty comments are a factor that increases the preference for safe assets across the market. On top of that, supply-demand volatility has increased as gamma and delta hedge positions are being liquidated and readjusted ahead of the U.S. options expiration date on Friday (21st). The recent concentration of options trading on tech stocks driving the Nasdaq has increased volatility with related mass trading, which, coupled with financial stability concerns, has led to an influx of stock price concentrations or a temporary increase in volatility

*Featured Stocks: Nvidia Turn Down Vs. Walmart Higher

Semiconductors: Nvidia Falls Amid Profitability Controversy After Huge Rise
Nvidia (-2.97%) rose more than 5% as it cited better-than-expected earnings and continued demand growth, and declared a “Circular AI” and expected continued expansion of spending. However, as the receivables are increasing more than expected, it expressed doubts about the profitability of hyperscalers, so it went on sale. If customers’ profitability is not guaranteed, Nvidia’s sales could also be disturbed. In addition, supply and demand factors overlap ahead of the option expiration date, eventually turning downward. AMD (-7.84%) rose nearly 5% on expectations for the AI industry, but fell due to a sharp rise in sales due to concentration into Nvidia’s ecosystem and Nvidia’s shift to decline. Broadcom (-2.14%) continued to strengthen, reflecting expectations for new products announced the previous day, but was also sluggish due to a shift in AI-related stocks. Philadelphia’s semiconductor index turned downward by 4.77%

Semiconductors: Micron Dips Significantly In The wake of Nvidia’s Decline Turnover
Micron (-10.87 percent), which recently announced that capital spending should be increased, fell sharply, while Western Digital (-8.92 percent) and SanDisk (-20.3 percent) also opened for sale and turned downward. Most AI service-related companies, such as Ram Research (-6.19 percent), AMAT (-6.15%), data center-related companies such as Super Micro Computer (-6.43%) and Coreweave (-7.62%), UI Pass (-5.56%), C3AI (-5.10 percent), and Paladine AI (-2.06%), are also on the decline.

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