Chip Wreck

00:00:00: Oil plunged more than ten percent yesterday on renewed hope for a Middle East peace deal.

00:00:05: Dragging bond yields lower across the globe ahead of this week's critical Federal Reserve rate decision, but with technology headlines were just too ugly to cheer investors up because Chinese rivals actually rattle the semi-conductor sector whether we're talking South Korea or the US.

00:00:25: while Nvidia struck a nerve by reviving fears over AI financing deals just stays before big technology goes to the earnings confessional, potentially announcing another round of ballooning AI spending shrinking free cash flow and fresh equity and debt issuance.

00:00:43: So welcome to Swissco's daily market talk!

00:00:47: It is Tuesday, July.

00:00:54: in mind that opinions are my own and this is not financial advice.

00:01:08: This show was brought to you by SwissQuote.

00:01:10: Oops, it happened again!

00:01:12: US clear tank more than eleven percent yesterday after the U.S suddenly stopped its attacks on Iran And US President Donald Trump said there was a good chance of reaching peace.

00:01:24: deal with Iran And oil extends losses this morning with U.S.

00:01:28: crude trading near eighty-two and a half dollar per barrel level, and brand cred near eighty five dollars per barrel mark following in more than thirteen percent pullback yesterday.

00:01:39: Fun fact Iran denies that talks are taking place So there is better chance I would say to Trump's latest statement just another empty promise, much like the empties previous pledges to end a war in Iran and reopen the strait of Hormuz to let these ships sail through.

00:01:58: But whatever it is that retreated oil prices yesterday are pulling the global yields lower making me think that while Trump's statement was just another verbal intervention to stop the spike in US yields even though it means just a temporary relief.

00:02:11: but indeed U.S ten-year yield is down from that best captures the Federal Reserve's rate expectations, pulls back to a four-point thirty percent level as the Federal reserve starts its two day monetary policy meeting today.

00:02:28: Now this is the second FOMC meeting under the new Fed Governor Mr Kevin Walsh and in his first meeting remember?

00:02:37: Mr Walshe refused to add a plot the future.

00:02:45: And in this meeting, some people expect him to push for a partially price-rate hike to cement idea that The Federal Reserve will no longer pursue forward guidance strategy but rather reinforce its credibility as an economist.

00:03:00: I think provided extreme uncertainty and geopolitical landscape has major implications of macroeconomic data or worse strategies.

00:03:09: stop trying.

00:03:10: guess sounds about right.

00:03:11: so it is actually possible that the Fed delivers a partially priced rate hike this Wednesday.

00:03:18: And, a partially-priced nature of a potential rate hike tomorrow could eventually spoil the markets as the liquidity runs thin in summer months.

00:03:27: Activity on Fed Fund's futures assesses only around thirty eight percent chance for a rate hike to happen this week!

00:03:33: I actually still believe we will see that first Warsh Hike in September.

00:03:38: just to interact with.

00:03:42: I'm not rolling out any other options.

00:03:44: So the options are open and risks are tilted Both sides.

00:03:48: Anyway, this afternoon yields on Monday could hardly improve the mood among technology investors.

00:03:52: That's something I think is important to note.

00:03:54: The mood there was rattled by three distinct news.

00:03:58: One as we talked about yesterday The Chinese memo chip maker CXMT made a massive market debut in Shanghai.

00:04:05: We were talking about nearly ten billion US dollar worth of IPO with more than five hundred percent rise In the first day of trading Even though it will take time for foreign investors To gain access and exchange only.

00:04:18: The fact that CXMT will pressure other chipmakers pricing power is already sending shivers through some of the market's hottest chip stocks, And yes I'm talking about KOSPI.

00:04:28: that has become a benchmark for two Korean memory chip makers Samsung and the very SK Hynex!

00:04:35: That indexed ten percent today in Korea.

00:04:39: The Korean index has already stepped into the medium-term bearish consolidation zone earlier this month, remember?

00:04:46: And it's already shed a third of its value in about six weeks time.

00:04:50: and past year bubble now looks to have burst so we can officially call it a bubble now.

00:04:57: Moving forward chances are that this pullback will continue.

00:05:01: Then two!

00:05:01: Asml which had been world only company to produce most advanced chip making machines tanked more than Eight percent in a single session in Amsterdam yesterday after the information reported that a Shanghai based company with no name for now hasn't been mentioned.

00:05:22: But that company, whichever it is has started making immersion deep ultraviolet lithographic tools.

00:05:30: In other terms they start making advanced machine makers.

00:05:33: and obviously That would be a nightmare for the Dutch ASML because It will mean that The Company Will no longer hold in monopoly position.

00:05:40: And worse!

00:05:41: It's will face Chinese competition.

00:05:44: God help them.

00:05:45: M-III.

00:05:46: all this one Has nothing to do with the chinese.

00:05:48: The circular AI ideal fears are forcefully back since yesterday.

00:05:52: The day after, NVIDIA said that it will guarantee up to US dollars to help open AI lease a data center project in Ohio.

00:06:01: Also they also said that Nvidia is considering financing the purchase of US dollars worth of NVIDia chips for OpenAI.

00:06:10: OpenAI on the other hand will likely postpone its plans to go public this year aiming at mounting market and investor stress over circular AI deals and ROI and excessive K-Packs pour into this AI infrastructure, eating also into the hyperscalars free cash flow that make all these investments obliging them to issue stock and debt-to-finance extra spending.

00:06:32: Also in an environment of rising interest rate expectations due to the Middle East and Ukraine war.

00:06:38: so we are not at all on a market that could absorb another big IPO like open AIs.

00:06:43: but coming back to NVIDIA ,the market reaction to nvidia news was swiftly negative.

00:06:47: yesterday The company's stock price fell five percent and close the session below the two hundred dollar per share psychological mark.

00:06:55: But more importantly, NVIDIA's five-year CDS spiked on the news suggesting that it may not yet be a good time to buy a dip anyway because looking elsewhere all situation is NOT better!

00:07:07: The circular deal and rising leverage worries creep in again.

00:07:11: big technologies Five year CDS are rising too along with NVIDia's with Meta leading the worry among the Big AIs.

00:07:30: So that gives you a clear idea on how hard it will be for the big technology companies to prevent further sell-off.

00:07:42: this week when Microsoft Amazon and Meta will go to the earnings confessional, and probably announce more AI spending that we'll have to rely on more stock and debt issuance.

00:07:53: And that's going to increase leverage in their balance sheets!

00:07:56: And numbers are already very much worrying indeed because together Alphabet, Amazon, Meta, Microsoft & Oracle these five companies already raised more than US USD by selling equity and bonds this year according to S&P Global Market Intelligence.

00:08:13: So that is already three times more than the entire two thousand twenty five issuance.

00:08:20: and we are just end of July.

00:08:22: right now then alphabet last week printed investors biggest scare a negative free cash flow in The second quarter off this year due to their massive spending eating interest cash And digging deeper.

00:08:32: Nikkei warned last week at the so-called hyperscalars may have some One point sixty five trillion US dollars.

00:08:39: Yes, there is no mistake.

00:08:41: one point sixty-five trillion us dollars and hidden debt.

00:08:44: So that's off.

00:08:45: balance sheet obligations such as lease commitments for example That don't need to show up on regular accounting sheets but they still exist.

00:08:53: so in summary There's a lot of cockroaches investors should be dealing with in the coming days.

00:08:58: It feels like whatever the big technology announces this week investors will be hard to cheer.

00:09:03: So as I said last week, damned if you spend and risk falling behind the AI race.

00:09:08: And damned If You Don't a software spending growth would be sending a twister on entire AI supply chain stocks and will not be received as good news by the markets.

00:09:18: The only good news here is that period of price pullback always creates opportunities!

00:09:23: The challenge however it's to spot next big wave.

00:09:26: Is there going to be copper miners?

00:09:28: Electricity providers?

00:09:29: Networking specialists or new companies building tomorrow's AI infrastructure infrastructure, where are we going to see the next big AI wave hit the shore?

00:09:37: Time will tell.

00:09:38: So I'll leave you with that question today!

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00:10:15: So I will meet again tomorrow and until then good day trading.

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