This wasn’t the price action that the bulls were hoping for today.
Nvidia crushed earnings once again and its revenue forecast was strong but after a 5% pre-market jump, shares slowly faded and are now down 1.8%, threatening to leave a nasty candle on the chart on what’s looking to be a high-volume day.
Now maybe this is simply a reflection of a market that’s stuffed with options trading and all the hedging and position squaring that comes with that, but I doubt it.
I have been making the case for a bubble in Nvidia this week and the performance of Gemini 3 added to the argument. The sky-high demand for the next few quarters is baked in but 75% margins don’t last; not if you believe in capitalism.
For the broader market, that’s not necessarily negative. Google proving it can make an incredible LLM without Nvidia chips means that others can do it as well, and that will lower Nvidia’s profits, but boost them down the value chain. The problem is that Nvidia itself is 8% of the S&P 500 so a halving in the stock would trim 4 percentage points by itself. Then you have all the other fluff in the AI space and there’s a case for a washout.
The other change in the past few weeks has been the Fed. Powell pushed back against a December rate cut and that’s now priced at just 36% from a near certainty. A less-dovish Fed is never a great thing for markets and is a drag. The good news is that there has already been a fair bit of repricing. For next year, the market is now at 2.98% at year end, which is about 3.5 cuts. It’s also critical to note that there is still a pretty big Fed put with rates at 3.75-4.00% currently. If things go wrong, they have ammunition.
All told, I wouldn’t worry too much about the Fed but with AI, it’s always a fine line. Ultimately, I don’t think this is the end of the party because Google showed this week that there are still big leaps to be made in the performance of LLMs. But that doesn’t mean we can’t dip another 10% from here.
This article was written by Adam Button at investinglive.com.