The Brightest and Best are Falling the Fastest
The companies the experts claimed couldn't fall are the ones falling the hardest now.
You know the stock market is in a precarious spot when the hero of the market, Nvidia, issues a report on earnings that is variously called “stellar” and a “blowout,” yet it plunges more than 5%, sucking two of the big-three indices down in its undertow.
The market is “priced to perfection,” so even skyrocketing results that were simply less than perfect, left Nvidia to fall like a Space X rocket in what was the AI giant’s worst session since April. That is a market that really wants to fall. The problems for Nvidia were that its future projections looked a tiny bit shaky as competition starts to sneak up on it and as a deal with OpenAi seems to be stalling. Still, earnings were out of this world … and what’s a little competition among astronomic giants?
In an interview with CNBC, Singh explained that the report shows “just how emotions, not logic, is driving the stock market right now.” She noted that just because there may be other players in the field, it shouldn’t mean Nvidia can’t emerge a winner….
Similarly, Adam Phillips of EP Wealth Advisors and Dan Hanbury, global strategic equity co-portfolio manager at Ninety One, said they believe the post-earnings Nvidia reaction speaks to investors’ anxiety around the AI trade in recent months….
“It’s becoming harder and harder to impress the Street and I think that many investors are kind of just wondering where things go from here,” he said. “Is all this investment going to pay off?”
That was the exact change in sentiment that took the stock market from a couple years of euphoria near the turn of the millennium to crashing during the dot-com bust. The hissing you hear from investors, responding to today’s report, is the sound of reality seeping in.
“The market is very much in ‘prove it’ mode, and Nvidia just didn’t quite ‘prove it’ with these earnings,” said Tom Graff, Facet’s chief investment officer, said to CNBC, noting concerns around the chipmaker’s deal with OpenAI.
What we are seeing is a sporadic and restless bear market. For example the iShares Expanded Tech-Software Sector ETF has gone solidly into the bear’s territory, down roughly 30% from its recent high. This kind of shakedown separates the future survivors who will become the new economy from the wannabes. That was what we saw during the dot-com bust. All the tech stocks crashed, but some far worse than others. The survivors took years to recover their losses, but eventually survived to be the big winners all the way until the present.
One example of the weak players has been seen in recent weeks in the form of C3 AI, which sank another 17% today, and has now announced that it will be cutting over a quarter of its labor force.
The enterprise artificial intelligence company with the ticker AI reported $53 million in third-quarter revenue, far below LSEG estimates of $76 million.
The company reported a loss of 40 cents per share, while analysts expected a loss of 29 cents per share.
“What I consistently hear is that every CEO is making AI a top strategic priority, and they want to realize measurable economic value from it. That is exactly what our products deliver,” CEO Stephen Ehikian said on the company’s earnings call. “That said, it became clear to me that our cost structure was simply too high, and we were not organized correctly for the opportunity.”
So, the weaker hands get shaken out during the crash. Some may survive by tightening their belts. Others will become the next Studebakers and Packards.
Remember, a year ago, all expert stock advisors said it couldn’t happen. I kept saying it could and it would. Now the Big Tech stocks are leaving bright streaks across a darkening sky.
(Sources for the quotes above appear in boldface among the headlines below:)
