US Semiconductor Stocks "Black Monday": CDS Surge Exposes AI Financing Anxiety

By: Rita

Monday's market performance left many US stock investors somewhat confused.

The PHLX Semiconductor Sector Index fell nearly 5% intraday and closed down 2.23%, hitting a new low since May 20. Individual stocks faced pressure: Nvidia fell 5%, SanDisk plunged 11%, SK Hynix ADR fell 7.5%, AMD fell 5.2%, and ASML fell 5.8%. Goldman Sachs trader John Flood mentioned in a briefing that inquiry volume increased and market sentiment weakened.

Nvidia Rumors Become the Trigger

Triggering this round of sell-off was a rumor regarding Nvidia. According to media reports, Nvidia is negotiating to provide financial guarantees worth around $250 billion for OpenAI's Ohio data center project, and may subsequently participate in chip financing, with a potential scale increasing by an additional $350 billion.

Flood cited the trading desk's view in the briefing: if this deal ultimately materializes, looking back in the future, it may be marked as the high-water mark of AI financing frenzy. The market's question regarding "how much room is left for AI capital expenditure" is shifting from fringe discussion to mainstream narrative.

The hot performance of Chinese memory chip company CXMT on its first day of listing, along with lithography machine leader ASML declining due to industry rumors, jointly exacerbated the adjustment pressure on the sector.

Credit Risk Replaces Compute Narrative as Focus

Flood also pointed out that the focus of market attention is changing. AI capital expenditure has shifted from a driver to an object of scrutiny; credit risk has replaced the compute narrative, becoming the most sensitive topic currently.

LSEG data shows that CDS prices for companies such as Oracle, SpaceX, Google, Amazon, Meta, and Broadcom recently hit record highs. The signal from the bond market is clear: the huge expenditures by large tech companies on data centers, chips, and storage are triggering concerns among credit investors.

This concern is logically sound. When a company must maintain huge capital expenditures while financing in a high-interest-rate environment, an upward trend in credit premium is inevitable. The AI compute narrative is sexy, but debt must be repaid.

Valuations Are Low But Sell-off Has Not Stopped

The Nasdaq 100 Index forward P/E ratio has dropped to 21.8 times, representing a discount of nearly 10% compared to the ten-year average of 23.6 times, the lowest level since the AI rally began in early 2023. From a valuation perspective, tech stocks are no longer considered expensive.

But Flood noticed an anomaly: semiconductor company earnings reports remain strong, yet stock prices generally declined after earnings releases. Cheap valuations and earnings beats did not stop the sell-off; the market is digesting this week's dense tech stock earnings reports in advance.

This means the market focus has shifted from this quarter's EPS to expectations for the next few quarters. If the AI financing model is questioned and the slope of capital expenditure slows, downward revisions to earnings forecasts are only a matter of time.

Rising Interest Rates Are a Greater Macro Pressure

At the macro level, US Treasury yields have risen over the past week. The 10-year real yield touched the highest level since 2023, and the 30-year real yield approached 3%, a level the latter has reached in only a few months since the Global Financial Crisis.

Flood's statistics show that when interest rates rise by more than two standard deviations in a single month, US stocks have historically performed generally weakly. Calculated at current levels, if the 10-year nominal yield rises to around 5% in the short term, or the real yield rises to around 2.7%, the pressure will be greater.

This means that even if the AI narrative does not change at all, the rise in risk-free rates itself is pressing down on the valuation ceiling for all growth stocks.

Rare Divergence Between Individual Stock Volatility and Index

Flood also noticed a rare phenomenon: a divergence has appeared between the average volatility of S&P 500 Index components and the index implied volatility. Volatility at the individual stock level is far higher than at the index level; the market is experiencing structural differentiation.

In the short term, individual stock volatility may remain high, but the broader market index is still expected to stabilize supported by corporate earnings. The Federal Reserve is highly unlikely to raise rates on Wednesday, although the market has already digested expectations for a September rate hike.

The essence of this round of decline is the market's first collective scrutiny of the sustainability of the AI financing model. The CDS market flashed the first yellow card; this week's earnings are the next hurdle. Microsoft and Meta lead the way on Wednesday, followed by Apple and Amazon on Thursday. If head companies can use earnings to prove expenditure efficiency, this sell-off may just be a violent turnover during the ascent. If not, the stress test will intensify.

Disclaimer

This article is an organization and interpretation of public market information by TechFlow Research and does not constitute any investment advice.

Market involves risks; decisions must be made independently. This article should not be used as a basis for buying or selling any securities.