This story helped improve market mood here on Friday, but as a reminder, this is a story that has already made it into the headlines for several months. But at a time when the market is looking for something to hang on to, it was at least enough to deter risk-on last week.
And to date, the mood remains more positive but that doesn’t change how bad things were last week. S&P 500 futures are up 0.5% and Nasdaq futures are up 0.8% as we now look ahead to European trade. However, the former is set for the first monthly decline since April and the latter is looking at the first decline since March.
The negative mood came last week despite Nvidia’s supposedly “fantastic” earnings on paper. However, I would argue that it really depends on how you want to look at it.
If you look at Nvidia’s operating cash flow (OCF), it has declined to $23.8 billion or 13% from its peak of $27.4 billion. If revenues were indeed increasing, OCF would also be increasing. However, the bottom line is this and it points to a classic story of accounting adjustments boosting the numbers to make it all look better than it should.
Additionally, there are rumors flying around that Nvidia’s inventory continued to grow by nearly $20 billion in Q3. Even if it isn’t noticed, rising inventory amid slowing growth is generally a red flag for most companies. But because Nvidia is the darling of this AI bubble, there are many investors who would prefer to turn a blind eye to it. However, it should be something worth investigating.
So, that’s my take on the Nvidia story. something Beauty lies in the eyes of the beholderAnd in my view, there are a number of worthwhile concerns in terms of how the market is evaluating the AI bubble at the moment, At least this change also needs to be considered,
From a technical perspective, both the S&P 500 and Nasdaq are now completing tests of their 100-day moving averages. Both major indexes last traded below their key daily moving averages in early May following April’s tariff results. Therefore, this will be a very important technical level to keep an eye on in this week’s trading.
Especially as this comes at a time when the pure risk asset is headed for further decline, with Bitcoin falling near $80,000 on Friday and barely above its 100-week moving average. On the latter technical point, this is the first time since October 2023 that the cryptocurrency has dropped down to challenge key levels.
While risk trades are showing some life again today, the overall backdrop above suggests that the coast is not yet clear. Therefore, it would be wise to tread carefully.
