A Break in the AI-trade
Did the “AI bubble” finally start to crack last week? After racing to record highs, AI leaders like Micron, Nvidia, Broadcom, Marvell, and AMD sharply pulled back, with several posting their worst single day losses in weeks.
The issue clearly isn’t AI demand. Applied Materials just issued strong guidance, forecasting semiconductor equipment sales growth of more than 30% this year, specifically pointing to AI and memory demand as key drivers. On top of that, AI CapEx is still climbing, directly funding the companies selling the “picks and shovels” behind the infrastructure boom.
So what gives? Why the pullback?
It comes back to one of the two biggest forces that drive markets: earnings and interest rates.
Last week, long term Treasury yields moved higher after hotter than expected April CPI and PPI reports crushed hopes for Federal Reserve rate cuts this year. For high growth AI stocks trading at premium valuations, that matters. When rates rise, future earnings become less valuable today, and investors become less willing to pay record high multiples, even for companies with strong demand. So for traders and investors, keep an eye on the bond market, if yields continue higher, investors may be more inclined to buy bonds and sell stocks, especially high growth tech.
One thing to note is that a single day on the stock market shouldn’t decided the entire strategy because it can change quickly. The events and data does suggest that capital is moving out of high growth tech, but it’s a story to continue monitoring and ensuring the theory is still valid…this allows us to manage our portfolio better. The capital shift also goes to other parts of the market, industries and stocks that are projected to benefit during this period will be the ones we highlight in our weekly watchlists.
High Stakes Earnings & Events This Week
- Supply Chain Concerns: Keep an eye on Samsung Electronics. Labor management talks resume on Monday to avert a massive 18 day nationwide strike slated to begin May 21. If negotiations fail, it could trigger major disruptions in the global memory chip supply.
- NVIDIA (Wednesday, May 20, after the close): The market expects Q1 revenue to hover near a staggering $80 billion. Investors will look past the raw numbers to focus on the Blackwell/Rubin architecture timeline, whether gross margins can hold steady around 75%, and how heavily tech hyperscalers are leaning into their own in-house chips.
- Other Key Earnings: Retail giants Walmart, Home Depot, and Lowe's will offer a critical health check on the US consumer, while major Chinese tech names like Baidu and NetEase also report.
- FOMC Minutes (Wednesday): The Fed will release minutes from its April meeting. Given the recent streak of hot inflation data, investors will look for signs of how hawkish policymakers are turning. Fed Funds futures are already implying slightly better than even odds of another Fed rate hike instead of a cut…if that report confirms those odds, it may add more pressure on stocks.
Geopolitics & the US-China Trade
In a notable geopolitical development, Chinese President Xi Jinping met with President Donald Trump, hailing a new "constructive strategic stable relationship." While both leaders reached broad agreements to stabilize trade and economic ties, there were no concrete policy breakthroughs. This led to a sell-off in Chinese equities in the near-term, but we do expect it to help stabilize them in the long run, hence why we entered a few positions on the sell-off last week.
Oil prices are a massive concern again as Brent crude surges back to its recent highs. High energy prices act as a direct tax on global consumers, and more importantly for Wall Street, they stoke the flames of global inflation. This is perhaps the biggest threat the market and global economy faces right now. Think of this as systematic risk…there are two kinds of risks on the market: company specific risk and market wide risk. Company specific risk is when one business has a bad earnings report, loses market share, or faces internal issues. That can hurt the stock, but it doesn’t necessarily shake the entire market. Systematic risk is different. This is the kind of risk that hits everything at once…inflation, interest rates, oil shocks, currency pressure, war, credit stress, and slowing economic growth. We must always account for this when positioning, because one of these events can cause an entire market shakedown.
SPY Technical Analysis:
Although SPY is still above its 10 day moving average (the average price buyers have been willing to pay over the past ten trading days), it did break the overnight uptrend late last week, which leaves buyers in a weaker position to kick off this week. The next major support zone is 724.00-728.00, a move below that could trigger a structural change. We’ll adjust accordingly.
Analysis by Q. Founder, Hyper Stocks
Focus: Equity Analysis | Macro Economics | Swing Strategy
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Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of capital. Always conduct your own research or consult with a licensed financial advisor before making investment decisions.
Hyper Stocks and its contributors may hold positions in some of the securities or assets mentioned above. These positions are subject to change without notice. Any opinions expressed reflect current views at the time of writing and are not guarantees of future performance. Past performance does not guarantee future results.