Market Pullback in Mid-August
The equity market fell this week during quiet summer trading, with the S&P 500 down nearly 2% and the NASDAQ down nearly 3%. The cause is a split in the market. Corporate fundamentals stay strong, but geopolitical tensions are rising and now outweigh that strength.
Crude oil rose over 5% this week, its second straight week of over 5% gains. The 10-year Treasury yield, the benchmark, sits about flat for the week, but its swings have been sharp. Rising yield swings put more pressure on stocks. The dollar sits at over three-month lows, which pushed gold, oil, and other commodities higher.
Even with these losses, the S&P 500 is only a couple percent off the record high hit last Thursday. The Russell 2000 small caps fell nearly 3% this week but stay just off their record close from last Friday. This looks like an overdue correction, not a negative trend, though the market needs some resolution on these macro problems. Every rally this week got sold off fast. Futures are rebounding a bit. Bitcoin popped about 5.6% today after being up over 7%, hitting three or four month highs.
Broadcom's AI Chip Financing Deal
Broadcom (AVGO) fell 7.4% this week, one of the bigger drops. The main story is a large financing package tied to AI semiconductors and to Anthropic. According to Bloomberg, the deal involves $60 billion in debt, with terms still being worked out. It includes a potential $30 billion junior debt tranche. Blackstone (BX) and Apollo (APO) are in talks with Broadcom to join the chip financing. The full deal could reach close to $100 billion.
Supply remains weak and demand is outstripping supply, so the AI infrastructure buildout needs financing. Anthropic and its Claude platform are a big part of this buildout, aiming to secure enough computing capacity. The stock popped a little this morning, which suggests the market is fine with Broadcom taking on this much debt.
What actually pressured Broadcom this week was not discomfort with the debt. It was the risk of losing market share of Google's (GOOGL) AI infrastructure spending to Marvell (MRVL). Marvell may get a big chunk of Google's TPU buildout, and that Marvell-Google deal announced earlier this week sent Broadcom shares lower.
Nvidia Earnings and a New Bull
Nvidia (NVDA) reports earnings next Wednesday after the close. BMO started coverage with a more bullish lean. The past several Nvidia earnings events brought post-earnings selloffs, small ones, so earnings have not been a bullish catalyst for the shares.
Last quarter Nvidia grew 85%, beating expectations by over 5%, yet the market wanted more. CEO Jensen Huang has made this point on the last couple of earnings calls. Growth this quarter is expected above 90% year-over-year. The stock recently broke out of a range of about 190 to 210, but is down over 3% this week going into the report.
This report matters for the whole market because Nvidia is the biggest component in both the S&P 500 and the NASDAQ 100. A note today from a firm reiterated or initiated an outperform rating with a $340 price target, citing Nvidia's integrated technology stack and its lead in supporting large language model ecosystems. Nvidia is also diversifying some of the money it commits, part of the round-robin of AI infrastructure buildout financing.
Nvidia is sold out on its Blackwell chips for the next 12 months. The key question is guidance, and whether Nvidia can sustain these growth rates. A beat-and-raise quarter is no longer enough. The market now wants sharply accelerating growth. Nvidia has delivered that for several quarters, but the market does not always read the numbers as positive as they are.
