Nvidia suffers massive sell-off, Apple regains top global market cap—what signal does this send?

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At the U.S. market close on Monday, Nvidia dropped nearly 5%, while Apple rose over 1%. Nvidia’s market cap fell to about $4.77 trillion, and Apple regained the top spot globally at $4.95 trillion—this is Apple’s first time back to this position since April 2025. The two companies’ shifts in ranking appear to be normal market fluctuations, but behind the scenes, the credit market is signaling something quite different.

On the same day, Nvidia’s 5-year CDS surged about 14 basis points intraday, peaking at around 82 basis points per year—the largest intraday rise since this contract began active trading last November. To buy five-year default protection for $10 million of Nvidia debt, it costs roughly $82,000 per year.

Manish Kabra, Societe Generale’s U.S. equity strategy head, put it bluntly: “For super-large computing companies, look at CDS now, not EPS.”

CDS, or credit default swap, is used by the bond market to price a company’s debt risk. Rising CDS indicates the bond market sees credit deteriorating. Nvidia is the world’s most profitable chip company, with FY2026 revenues of $215.9 billion, net profit of $120 billion, and free cash flow of $96.7 billion—its CDS surge is not due to profitability worries, but to what it’s doing.

Since 2026, Nvidia stock is up only 4%, Apple up 24%. This gap is not random. Apple has consistently exercised restraint on AI capital expenditure, preferring to rent computing power rather than build its own infrastructure, with capital expenditure dropping for three consecutive quarters.

While Nvidia and other tech giants are betting hundreds of billions on AI infrastructure, Apple has chosen a different path. Jay Woods, chief market strategist at Freedom Capital Markets, commented: “Apple was criticized for insufficient AI investment, but now 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 in talks with OpenAI to provide about $250 billion in financing guarantees, helping OpenAI secure computing power in SoftBank’s 10GW data center project in Ohio. Nvidia is also in discussions to provide financing for OpenAI’s $350 billion chip procurement project. Combined with its previously announced $500 billion+ partnership with SK Group, Nvidia’s potential involvement in AI infrastructure now exceeds $750 billion.

One figure needs repeated weighing: by the end of FY2026 (January 25), Nvidia’s total cash and marketable securities was about $62.6 billion. A $250 billion guarantee is roughly 4 times that cash reserve. Nvidia’s latest 10-Q shows the disclosed upper limit for partner facility lease guarantees is only $3.5 billion—$250 billion is 71 times that.

The Wall Street Journal calls this model a “Credit Wrapper”: investment-grade tech giants use their own balance sheets to finance shell companies, helping them access low-cost debt that would otherwise be unattainable. Both OpenAI and Anthropic currently lack investment-grade credit ratings.

The core issue is “circulation”: Nvidia provides financing or guarantees for its customers, who in turn purchase Nvidia chips. OpenAI has raised its pre-2030 compute spending budget from about $600 billion to $750 billion.

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

Sal Naro, chief investment officer of Coherence Credit Strategies, calls this “financial alchemy,” worried that “opacity, off-balance-sheet transactions, and inter-company relationships” could lead to downgrades.

This model is not unique to Nvidia. Google has agreed to guarantee lease payments for Anthropic at five data center locations, helping OpenAI’s competitor obtain loans totaling about $35 billion. Same logic—big companies use their credit to help AI companies get low-cost financing, who then consume those big companies’ cloud services, chips, or computing power.

Nvidia CEO Jensen Huang addressed this skepticism when discussing the CoreWeave investment in January: “It’s just a small part of the funding they ultimately need to raise. The claim that this is circular financing—utterly absurd.” He argues these investments both support Nvidia’s business and generate investment returns.

Two explanations are on the table, and the market currently sides with the former. Famed investor and “The Big Short” movie protagonist Michael Burry is also increasing his bet against Nvidia, posting on Substack on July 25 to further expand his short position, citing BIS’s 2026 annual report which states that Nvidia’s current and future demand “does not come from end customers, but is driven by circular, off-balance-sheet financing arrangements.” Burry previously predicted the semiconductor sector could see a 30% pullback.

From Nvidia to Oracle: Credit Confidence Crisis Spreads

Nvidia is not the only company with rising CDS.

LSEG data shows CDS prices for Oracle, SpaceX, Alphabet, Amazon, Meta, and Broadcom recently hit record highs.

Oracle’s situation is especially dire. On July 9, S&P Global Ratings downgraded Oracle’s long-term credit rating from BBB to BBB-, just one notch above junk grade. S&P estimates Oracle’s FY2027 capital expenditure will reach $90-95 billion, with operating activities consuming about $42 billion in cash, far above the previous estimate of $24 billion. S&P further notes that OpenAI accounts for about half of Oracle’s remaining contract obligations—client concentration risk is high.

Oracle’s five-year CDS stood at 215 basis points on Monday, up from 144 at the start of the year. Its 10-year bond yield is about 6.4%, close to the 6.7% yield of BB-grade (junk) bonds, and far above the 5.7% curve for BBB-grade bonds. Moody’s maintains a negative outlook for Oracle, meaning further downgrades are possible.

Alphabet’s situation is also worth noting. The Q2 earnings report released July 22 showed revenues of $119.8 billion, up 24% YoY, Google Cloud revenues soaring 82% to $24.8 billion, and cloud backlog orders surpassing $500 billion for the first time. But capital expenditure doubled to $44.9 billion, and free cash flow dropped to negative $5.9 billion—a first since Alphabet went public over 20 years ago. Alphabet has also raised its full-year capital expenditure guidance to $195-205 billion, and expects a big increase in 2027. CDS hit a historic high of 67 basis points Monday.

Meta’s signals are even sharper. Its latest financing costs for the $12 billion Texas data center have soared, approaching junk bond levels. Sona Asset Management CIO John Aylward says the debt is “priced in line with B- grade bonds trading today.”

Aylward says: “The credit market struggles with uncertainty, and the pace and cost of AI financing are highly unpredictable, triggering a serious confidence crisis.”

George Catrambone, head of Americas fixed income at DWS Group, notes that buying CDS is increasingly a tool for investors to hedge against credit downgrades: “Hedging is becoming more prevalent, especially after seeing these capital expenditure numbers post-earnings. Massive debt issuance but not necessarily increased revenue. The market is applying more scrutiny.”

Bond Market Pressure Spreads to Stock Market

Credit market signals are already passing to the stock market.

Monday, Philadelphia Semiconductor Index dropped 2.23%, Nvidia nearly 5%, AMD about 5%, ASML over 5%.

Korea’s market reaction was even sharper. Tuesday trading saw SK Hynix drop up to 11.1%, Samsung Electronics 9.5%, KOSPI up to 10%. Korea Exchange triggered SIDECAR mechanism to halt program selling. U.S.-listed SK Hynix stock closed at $143.02, below the IPO price of $149.

Kiwoom Securities analyst Han Ji-young points out this sell-off was driven by multiple factors: AI infrastructure financing risks, the impact of China’s low-cost open-source AI models (like Kimi K3) on expected compute demand, and competition concerns triggered by ChangXin Memory's IPO.

Meanwhile, data center construction is facing policy resistance. New York has imposed a one-year ban on new data centers, and Maine, Minnesota, Michigan, Pennsylvania, and other states are considering similar legislation.

Why Apple Won

Since 2026, Nvidia stock is up only 4%, Apple up 24%.

Apple remains cautious on AI capital spending, preferring to rent capacity rather than build infrastructure. Capital expenditure has fallen for three quarters. While Nvidia and giant cloud providers are betting hundreds of billions on AI infrastructure, Apple has taken another route. Jay Woods, chief market strategist at Freedom Capital Markets, says: “Apple was criticized for insufficient AI investment, but now it appears to have successfully avoided the capital expenditure trap.”

Nvidia briefly touched $5 trillion in market cap in October last year. Since then, doubts about AI infrastructure sustainability have deepened and Nvidia’s valuation premium narrowed.

Apple’s big moment is Thursday. After market close on July 30, Apple will report FY2026 Q3 earnings—this is also Tim Cook’s last earnings call before stepping down as CEO, with John Ternus taking over September 1. Consensus forecasts revenue at $108.8-110 billion, EPS at about $1.89, and gross margin at 47.5-48.5%, below last quarter’s 49.3%—rising memory chip prices are eating into hardware profit.

In June, Apple raised Mac and iPad prices due to memory chip shortages. This report is expected to quantify for the first time the actual financial impact of AI-induced global memory chip shortage on Apple. Meanwhile, investor focus is shifting from GPUs to memory chips and other data center hardware—Micron, SK Hynix, and SanDisk are becoming new focal points.

David Brown, co-head of investment grade global at Neuberger Berman, raises the core market issue: “The biggest question is, will this level of capital expenditure be permanent, and when will we see the inflection point of returning to positive cash flow? We won’t have an answer in the short term, which explains the weak performance.”

He further warns: “This could become a problem, since so much financing demand still awaits completion.”

What to Watch Next

First, Apple’s Thursday earnings report. Key numbers: can gross margin hold 48% (impacted by memory chip price hikes), is service business growth still double digits (core support for Apple’s premium valuation), and management’s Q4 gross margin guidance (has storage cost peaked). Cook’s comments on the CEO handover will be scrutinized.

Second, CDS trends. If CDS for Nvidia, Oracle, Alphabet, and Meta keep rising, the credit confidence crisis will further spill into stocks. SocGen’s Manish Kabra has already given a new observation framework: watch CDS, not EPS. If Oracle’s CDS breaks above the current 215 basis points and continues rising, it could trigger a Moody’s downgrade.

Third, final execution of Nvidia’s financing deals. If the $250 billion guarantee is signed, “circular financing” doubts deepen; if terms shrink or deals are delayed, it could suggest the pace of AI infrastructure investment is slowing. Also track changes in Nvidia’s guarantee book next quarter from the current $3.5 billion baseline.

Fourth, can Korea’s market stabilize. SK Hynix falling below the $149 IPO price is psychological, and KOSPI’s trend will show how much market expectations for AI chip demand are corrected. Whether HBM4 chip shipments grow as expected is critical for SK Hynix to stop the slide.

Fifth, regulatory developments for data centers. Will New York’s data center ban trigger more states to follow, impacting the pace of physical AI infrastructure expansion? Commerce Secretary Lutnick's decision on power allocation in Ohio will affect OpenAI’s compute layout progress.

Risk Warning and DisclaimerThe market carries risks, and investment requires caution. This article does not constitute personal investment advice, nor does it consider individual users’ specific investment objectives, financial situation or needs. Users should consider whether any opinions, views or conclusions in this article are suitable to their specific situation. Investing based on this is at your own risk. ```