Nvidia faces heavy sell-off, Apple reclaims top spot in global market capitalization—what signal does this send?

At Monday’s U.S. stock market close, Nvidia dropped nearly 5% while Apple rose more than 1%. The former’s market capitalization fell to about $4.77 trillion, while the latter regained the world’s number one spot at $4.95 trillion—this marks the first time Apple has returned to this position since April 2025.

The swap in rankings between the two companies appears to be routine market volatility on the surface, but underlying it, the credit market is signaling a dramatically different story.

On the same day, Nvidia’s five-year CDS rose as much as about 14 basis points during trading, peaking at approximately 82 basis points per year—the largest intraday gain since the contract became actively traded in November last year. To buy five-year default protection for $10 million of Nvidia debt, it now costs about $82,000 per year.

Manish Kabra, Head of U.S. Equity Strategy at Société Générale, put it more bluntly:“For hyperscale compute companies, look at the CDS, not EPS.”

A CDS is a Credit Default Swap, used by the bond market to price a company’s debt repayment risk. When the CDS rises, it signals that the bond market believes the company’s credit is deteriorating. Nvidia is the world’s most profitable chip company, with $215.9 billion in revenue for fiscal 2026, $120 billion in net profit, and $96.7 billion in free cash flow—but with its CDS surging, what concerns the market is not Nvidia’s earnings power, but its current actions.

Since 2026, Nvidia’s stock has risen only 4%, while Apple has increased 24%.This gap is not by chance. Apple has consistently remained conservative in AI capital expenditure, preferring to rent computing power rather than build its own infrastructure, with capital expenditures continuing to fall over the past three quarters.

While Nvidia and other tech giants are betting hundreds of billions of dollars on AI infrastructure, Apple chose a different path. Jay Woods, Chief Market Strategist at Freedom Capital Markets, commented directly:“Apple was once criticized for underinvesting in AI, but in hindsight, it appears to have successfully avoided the capital expenditure trap.”

“Circular Financing”: $250 Billion Guarantee Is 4x Cash Reserves

What is Nvidia doing?

According to the Wall Street Journal on July 26, Nvidia is negotiating with OpenAI to provide about $250 billion in credit guarantees to help OpenAI secure computing power for SoftBank’s 10GW-level data center project being developed in Ohio. Nvidia is also discussing financing for OpenAI’s $350 billion chip procurement project. With previously announced $500 billion-plus cooperation with SK Group, Nvidia’s potential involvement in AI infrastructure deals has exceeded $750 billion.

One number is worth weighing repeatedly: as of the end of fiscal 2026 (January 25),Nvidia held about $62.6 billion in total cash and marketable securities. The $250 billion guarantee is roughly four times this cash reserve. According to Nvidia’s latest 10-Q, disclosed partner facility lease guarantees are capped at only $3.5 billion—one seventy-first of $250 billion.

The Wall Street Journal calls this model a “Credit Wrapper”: investment-grade tech giants use their own balance sheets to finance off-balance-sheet entities, helping them obtain low-cost debt they couldn’t access on their own. Neither OpenAI nor Anthropic currently have investment-grade credit ratings.

The heart of the issue is the “circular” nature: Nvidia provides financing or guarantees to customers, and these customers, in turn, purchase Nvidia’s chips. OpenAI has raised its compute spending budget before 2030 from around $600 billion to $750 billion.

Gary Tan, a portfolio manager at Allspring Global Investments, said: “More and more capital is being used to fund future AI clients and infrastructure deployment.”

Sal Naro, CIO of Coherence Credit Strategies, called this model “financial alchemy,” expressing concerns that “opacity, off-balance-sheet transactions, and inter-company relationships” could lead to a downgrade in credit ratings.

This model is not unique to Nvidia. Google has agreed to guarantee lease payments for Anthropic at five data center sites, helping OpenAI’s competitor get about $35 billion in loans. The logic is the same: large companies use their credit endorsements to help AI firms obtain low-cost funding, and these AI companies, in turn, consume the larger companies’ cloud services, chips, or compute power.

In January, Nvidia CEO Jensen Huang responded to such concerns regarding the investment in CoreWeave: “That is just a small fraction of the funds they will ultimately need to raise. The idea that this is circular financing—utterly absurd.” He believes these investments can both support Nvidia’s own business and provide investment returns.

With both perspectives on the table, the market has, for now, sided with the former.Famed investor and “The Big Short” movie prototype Michael Burry has also increased his short position on Nvidia, further expanding his short bet in a July 25 Substack post, citing the Bank for International Settlements (BIS) 2026 annual report which states that much of Nvidia’s current and future demand “is not from end customers but is cyclically driven through off-balance-sheet financing arrangements.” Burry previously predicted a nearly 30% correction in semiconductors.

From Nvidia to Oracle: The Credit Confidence Crisis Spreads

Nvidia is not the only company with rising CDS prices.

According to LSEG data, Oracle, SpaceX, Alphabet, Amazon, Meta, and Broadcom have all seen their CDS prices recently reach all-time highs.

Oracle’s situation is especially severe. On July 9, S&P Global Ratings downgraded Oracle’s long-term credit rating from BBB to BBB-, just one notch above junk. S&P expects Oracle’s capital expenditure in fiscal 2027 to reach $90-95 billion, with around $42 billion in cash consumption from operations, far higher than the previous forecast of $24 billion. S&P also noted that OpenAI accounts for about half of Oracle’s outstanding performance obligations—a high client concentration risk.

Oracle’s five-year CDS was quoted Monday at 215 basis points, up from 144 basis points at the start of the year. Its 10-year bond yield is around 6.4%, close to the 6.7% for BB-grade (junk) bonds and much higher than the BBB-grade curve’s 5.7%. Moody’s keeps a negative outlook on Oracle, suggesting more downgrades are possible in the medium term.

Alphabet’s situation is also notable. Its Q2 earnings, released July 22, showed $119.8 billion in revenue, up 24% year-on-year; Google Cloud revenue soared 82% to $24.8 billion, and cloud backlog crossed $500 billion for the first time. However, capital expenditure doubled to $44.9 billion, while free cash flow dropped to negative $5.9 billion—the first time since Alphabet went public over two decades ago. Alphabet also raised its full-year capex guidance to $195–$205 billion and expects spending to continue growing sharply into 2027. Its CDS hit a record high of 67 basis points on Monday.

Meta sends an even more stark signal. Its latest financing cost to raise funds for a $12 billion data center in Texas has surged close to junk bond levels. John Aylward, CIO at Sona Asset Management, said the debt “is priced at the level currently traded by B- rated bonds.”

Aylward bluntly stated: “The credit market has a hard time dealing with uncertainty, and the pace and cost of AI financing are extremely unpredictable, which is triggering a serious crisis of confidence.”

George Catrambone, Head of Americas Fixed Income at DWS Group, pointed out that buying CDS has become an investor hedging tool against credit rating downgrades: “Hedging is becoming more and more common, especially after seeing these capex numbers post-earnings. Massive debt has been issued, but increased revenue is not necessarily being demonstrated. The market is subjecting these companies to more and more scrutiny.”

Bond Market Pressure Spills Over Into Equities

Signals from the credit market have begun to transmit into the stock market.

On Monday, the Philadelphia Semiconductor Index fell 2.23%; Nvidia, nearly 5%; AMD, about 5%; ASML, over 5%.

Korean markets reacted even more sharply. During trading on Tuesday, SK Hynix fell as much as 11.1%, Samsung Electronics 9.5%, and the KOSPI index dropped as much as 10%. Korea Exchange triggered the SIDECAR mechanism to halt program-driven sell-offs. The closing price of SK Hynix’s U.S. stock was $143.02, below the $149 IPO issue price.

Han Ji-young, an analyst at Korea’s Kiwoom Securities, pointed out that this wave of sell-off was compounded by several factors: AI infrastructure financing risk; the impact of low-cost, open-source Chinese AI models (such as Kimi K3) on compute demand expectations; and competition concerns sparked by Changxin Memory’s IPO.

Meanwhile, data center construction is also facing policy obstacles. New York State has implemented a one-year moratorium on new data centers, and Maine, Minnesota, Michigan, Pennsylvania, and other states are considering similar legislation.

Why Apple Won: The Market Revalues the “Asset-Light” AI Path

Since 2026, Nvidia shares have only risen 4%, while Apple is up 24%.

Apple has stayed cautious in AI capital expenditure, preferring to lease compute rather than build infrastructure. Over the past three quarters, Apple’s capital spending has consistently declined.While Nvidia and hyperscale cloud providers have plowed hundreds of billions into AI infrastructure, Apple chose another path. Jay Woods, Chief Market Strategist at Freedom Capital Markets, remarked, “Apple was once criticized for underinvesting in AI, but now it seems to have successfully sidestepped the capex trap.”

Nvidia briefly touched a $5 trillion market value back in October last year. Since then, market skepticism about the sustainability of AI infrastructure has deepened, and Nvidia’s valuation premium has begun to shrink.

Apple’s test comes Thursday. After the close on July 30, Apple will release its Q3 2026 earnings—the last earnings call for Tim Cook before he steps down as CEO, with John Ternus taking over September 1. Consensus calls for revenue of about $108.8–110 billion, EPS around $1.89, and a gross margin of 47.5%–48.5%, lower than last quarter’s 49.3%—with memory chip price hikes eating into hardware profits.

In June, Apple raised Mac and iPad prices due to memory chip shortages. The market expects this earnings report to quantify for the first time the financial impact of AI-driven global memory chip shortages on Apple. At the same time, investor attention is shifting from GPUs to memory chips and other data center infrastructure, with Micron, SK Hynix, and SanDisk becoming the new focal points.

David Brown, Co-Head of Neuberger Berman’s Global Investment-Grade, raised the core market issue: “The biggest question is whether this level of capital expenditure will continue to grow permanently, and when we’ll see an inflection point back to positive free cash flow? We likely won’t have an answer in the near term, which explains the weak performance.”

He further warned: “This could become a problem, because there is still so much financing demand in the industry waiting to be fulfilled.”

What to Watch Next

First, Apple’s Thursday earnings report.Focus on three metrics: can the gross margin stay above 48% (memory price shock), will service revenue growth remain double-digit (core support for valuation), and management guidance on Q4 gross margin (whether storage costs have peaked). Cook’s comments on the CEO handover will also be closely scrutinized word-by-word.

Second, the trend in CDS.If CDS for Nvidia, Oracle, Alphabet, and Meta continues to rise, the credit market’s confidence crisis will further spread to equities. Société Générale’s Manish Kabra has provided a new monitoring framework: focus on CDS rather than EPS. If Oracle’s CDS pushes past 215 basis points and keeps rising, it may trigger a Moody’s downgrade.

Third, the final result of Nvidia’s financing transaction.If the $250 billion guarantee is signed, "circular financing" concerns will deepen; if terms are reduced or the deal is delayed, it may mean the pace of AI infrastructure investment is slowing. Also, watch for changes in Nvidia’s guarantee book in the next quarter’s 10-Q—tracking from the current $3.5 billion baseline.

Fourth, whether the Korean market can stabilize.SK Hynix falling below its $149 IPO price is a psychological benchmark; KOSPI’s subsequent performance will reflect the degree of market revision in AI chip demand expectations. Whether HBM4 chip shipments grow as expected is key to SK Hynix’s fundamentals and whether it can stop falling.

Fifth, data center regulatory trends.Whether New York’s data center ban prompts more states to follow will directly affect the pace of physical AI infrastructure expansion. Commerce Secretary Lutnick’s decision on power allocation for the Ohio project will also impact the progress of OpenAI’s computing layout.

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