But in a time when the market is desperately looking for something to cling onto, that was enough to at least stop the risk rout last week.
And so far today, the more positive mood is holding but it doesn’t take away from how bad things were in the past week. S&P 500 futures are seen up 0.5% with Nasdaq futures up 0.8% as we look towards European trading now. However, the former is poised for a first monthly drop since April with the latter eyeing the first since March.
The negative mood last week comes despite supposedly “great” Nvidia earnings on paper. However, I’d argue that it really depends on how you want to look at it.
If you look Nvidia’s operating cash flow (OCF), it’s down to $23.8 billion or 13% from its peak of $27.4 billion. If revenue was truly soaring, OCF would be too. However, it’s down and that points to a classic story of accounting adjustments boosting the numbers to make it all look nicer than it should.
Besides that, you have rumours floating around that Nvidia’s inventory continued to swell in Q3 to nearly $20 billion. Even if not seen thereabouts, rising inventory amid slower growth is typically a bit of a red flag for most companies. But because Nvidia is the darling of this AI bubble, there are many investors who’d prefer to turn a blind eye to that. However, it should be something worth scrutinising.
So, that’s my take on the Nvidia story. Something, something beauty lies in the eyes of the beholder. And in my view, there are a lot of worthwhile concerns in terms of how the market is valuing the AI bubble at this point in time. The last time both major indices traded below any of its key daily moving averages was back in early May, following the April tariffs fallout. So, that will be a very key technical level to keep an eye out for in trading this week.
That especially with it also coming at a time with further deleveraging across pure risk assets, with Bitcoin having slumped close to $80,000 on Friday and barely keeping above its 100-week moving average. On the latter technical point, that’s the first time the cryptocurrency has moved down to challenge the key level since October 2023.
While risk trades are showing some life again today, the overall backdrop above continues to suggest that the coast isn’t clear just yet
