Nvidia plummeted 5%! Massive AI circular trading sparks concerns over credit risk, Apple regains global top spot in market value.

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News that Nvidia is deeply involved in negotiations over AI infrastructure deals exceeding $750 billion has triggered a strong shock in the credit derivatives market, with its default protection costs marking a record single-day increase. At the same time, Apple has won market favor for its restrained capital expenditure strategy, regaining the crown as the world's most valuable publicly traded company.

According to ICE Data Services, Nvidia's five-year Credit Default Swap (CDS) spreads jumped by as much as 14 basis points in a single day to 82 basis points, marking the largest intraday increase since the contract began active trading last November. As a result, Nvidia’s share price closed down 5% on Monday.

Apple's stock has risen 24% this year, closing up 1.2% on Monday, bringing its market capitalization to about $4.93 trillion, surpassing Nvidia's $4.78 trillion.

The divergence between these two companies reflects the market’s underlying debate over the path of AI capital expenditures — whether heavy investment in AI infrastructure is truly a moat or a potential credit risk is something investors are now reconsidering.

Huge Guaranteed Deals Trigger Credit Market Alerts

Nvidia and South Korea’s SK Group announced a more than $500 billion AI cooperation agreement last Friday night, while also reportedly negotiating a guarantee deal with OpenAI worth up to $250 billion, to assist the latter in renting a data center project in Ohio developed by a SoftBank subsidiary. The news has garnered widespread market attention.

The magnitude of these deals is putting pressure on the debt market. Coherence Credit Strategies Chief Investment Officer Sal Naro said:

“The capital expenditures required to build AI infrastructure are huge, and the debt market is facing a supply shock. The concerns are that opaque financial structures, off-balance-sheet deals, and the complex relationships between affiliated companies could give rise to ‘financial alchemy,’ eventually leading to credit rating downgrades.”

Such large-scale financing usually requires investment-grade credit ratings. However, AI companies like OpenAI and Anthropic PBC are currently in a major cash-burning expansion phase, making it difficult to secure such ratings independently. This means endorsements by large tech companies like Nvidia become key for the relevant debt to attain high credit ratings.

Apple’s “Asset-light” AI Path Gets Market Revaluation

Apple’s stock has risen more than 22% year-to-date, leading the “Magnificent Seven” tech stocks. Freedom Capital Markets Chief Market Strategist Jay Woods points out:

“Apple was once criticized for insufficient AI investment, but now it appears they have successfully avoided the capital expenditure trap.”

Apple’s capital expenditures have continued to decline for the past three quarters, forming a sharp contrast with its peers. Last week, Alphabet raised its full-year capex outlook to support AI infrastructure construction, and Tesla also increased spending to advance its Robotaxi and robot businesses; both companies’ stocks fell after their reports — Alphabet is up about 3% year-to-date, while Tesla has slumped nearly 30%.

The market is now awaiting earnings reports from Microsoft, Amazon, and Meta this week, all of whom are expected to announce further increases in AI-related spending.

Apple will report earnings after the US market closes on Thursday. Investors will focus on the launch progress of its “Apple Intelligence” features, as well as the feasibility of scaling up AI without significantly increasing capital expenditures or compressing operating profit margins.

It’s also worth noting that Thursday will be Apple CEO Tim Cook’s last earnings call before stepping down. He will formally resign on September 1st to become Executive Chairman, with longtime Apple hardware engineering veteran John Ternus taking over as CEO.

Risk Warning and DisclaimerThe market has risks; investment needs caution. This article does not constitute personal investment advice and does not take into account individual users' specific investment objectives, financial circumstances, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Investment decisions made based on this information are at your own risk. ```