The AI trade is shaky after a sharp tech sell-off last week, with open questions over whether Anthropic will push ahead with its planned IPO later this month. In September, Anthropic signed a deal for gas-fired engines to power data centers, buying commitments for 1.7 gigawatts of generators worth $3.4 billion from One Power, per multiple reports. Anthropic is not buying One Power; the deal covers engineering and construction work.
What Drove the Swings
Last week brought heavy volatility. Election night produced a rally because the result gave certainty, but the larger move was lower and the market crashed. On the price chart, the break of 7,500 triggered a near free-fall. The S&P 500 (SPY) stopped at a level just above the 200-day moving average. I am watching 7,325 on the downside and expect it to get tested.
Texas flipping in the election hits two of the biggest stocks by market cap: SpaceX, which is not yet in the S&P 500, and Tesla (TSLA). AI spending and AI infrastructure face a slowdown - a speed bump, an obstacle that has many people questioning the trade.
The NVIDIA Trust Problem
Over the weekend came the story about the world's number-two company by size and its CEO. Jensen Huang confessed to an affair with an alleged spy. This leaves open questions. Trust is critical in this industry, and trust has now become an issue for NVIDIA (NVDA).
Some view Huang as irreplaceable; I have always held that no one is irreplaceable, and the key question is the succession plan. Among iconic industry leaders he ranks at the very top, but the fallout at the company itself is hard to predict. A few months back there were signs of trouble when he was not invited on a China trip; then he was added after Marco Rubio suggested he should skip it, and the president brought him on board.
Investigations continue. The Financial Times and New York Times have done strong investigative work, and this is only the first layer. The core unknowns: how much spying happened if it happened, how deep it goes, and what China holds over the company and over Huang. The story will make for a strong Netflix special when it fully comes out.
I do not think Huang is untrustable, but he did things that could expose the firm to many investigations and questions, and customers will look elsewhere because of the trust factor. There is also regulatory risk beyond the board's own probe - scrutiny over any exposed trade secrets or compromised export controls. President Trump voiced support for the leadership, but that is a weak vote of confidence; one philanderer backing another is not reassuring. The confidence I want is from the board running its own investigation, plus a clear statement on succession. If the view that Huang is irreplaceable is correct, there are major problems.
NVIDIA will have to manage its image and run Huang on Capitol Hill, where politicians on both sides will grab their sound bites over how deep this goes.
On the chart: NVDA traded at 175 to 177 pre-market, with major support at 165 going back a few years. People are dumping shares now, waiting for the cloud to clear. Can Huang survive this? Possibly. For bullish investors, 165 is not a level they want, though it could serve as an entry point for those waiting.
Fundamentally NVIDIA is hitting on all metrics, with a wide moat on the product side. Rivals will not jump the castle wall, but they will chip away and use the trust factor as their top selling point - a real chance to compete.
Alternatives and the Chip Landscape
If NVIDIA falls, the main beneficiaries are Broadcom (AVGO), AMD (AMD), and Alphabet/Google (GOOGL) - all up nicely in the pre-market. These are not at the top for GPUs; NVIDIA stays the leader with no one close to cracking it, and AMD is more of a CPU story.
The Relief Rally and What Comes Next
Monday opened with a rally to start the week. I read it as a relief rally: many oversold tech stocks are bouncing. The real question is whether it has legs, and I do not think so. The worst is not behind us.
The leaders that had kept the market afloat - staples and financials - were overbought and reversed sharply, so overbought conditions are now showing up elsewhere. Oil moving lower is good news and could help, and a resolution with Iran would help too.
Key data this week: CPI on Tuesday, PPI on Wednesday, plus many market-moving headlines from Washington. The next few weeks into December carry the same headwinds Trump faced in 2018: a possible Fed hike and a potential government shutdown, along with the rhetoric out of Washington and now the NVIDIA story. Too much smoke.
There has been no capitulation moment. The VIX reached 26, but after a long time in this business, 26 is not a puke-out. I want to see the VIX in the 30s, and if it goes to 40 that is when I get excited and want to put money to work. The market has been resilient over time and seasonal factors help.
If the S&P 500 breaks the 200-day moving average, a 10% correction gets to 7,060. That is possible given the NASDAQ has already had a 10% correction, the Russell has had a 10% correction, and the Dow has come close. A move back to 7,000 sounds awful but is on the table. I expect this rally to be short-lived, another down week by week's end, and a test of the 200-day moving average.
Long term I am bullish - 6 to 12 months out the market should be higher. Right now is not a good time, and Jensen Huang is not helping.
