Summary Nvidia delivered a stellar Q3 FY26 report, yet market volatility reflects rising concerns about broader macro fears rather than an AI bubble. Recent market jitters stem from global liquidity concerns, rising US dollar, and crypto liquidations, not fundamental weaknesses in AI or tech. Current market pullback presents attractive entry points in AI names, Mag 7 stocks, semiconductors, and select networking and software names. Investors should focus on macro factors—liquidity, interest rates, and central bank actions—while remaining rational & pragmatic in AI-related opportunities. Investment Thesis Despite literally crushing every expectation in the Q3 FY26 ER, Nvidia’s ( NVDA ) Huang appeared bewildered at the market’s volatile reaction to the company’s shares at an all-hands meeting yesterday , where he reportedly said: "If we delivered a bad quarter, it is evidence there's an AI bubble. If we delivered a great quarter, we are fueling the AI bubble." It’s not just Jensen Huang. Almost every investor (including myself) in this market feels as bewildered with the eruptive sentiment surrounding AI. Accounting 101 masterclasses from Michael Burry don’t help soothe the sentiment further. But at such times, I believe a deeper and more fundamental peek beneath the hoods of arguments is warranted. Per my observations over the past month or so, there have been a few macro events that have silently crept up, causing a few jitters in the shadows, leading to AI taking the fall for these macro jitters, pushing deep fear in the markets. I strongly believe this fear has created new opportunities for investors to get back into the AI game, leading me to be bullish on the entire stock market. Its Not AI Silly, Look On The Outside Of AI To start with, I have to give it to Dr. Michael Burry and his timing of the AI bubble warning . That was followed up by the quarterly 13F filing showing his now viral puts against Nvidia and Palantir and a series of tweets like the one I hyperlinked to in the section above. In reality, problems in the markets started a month before Dr. Burry’s opinions divided the markets, and crypto markets felt the initial reverberations. Exhibit A: Markets kept ignoring fringe systemic risks that were on the horizon in alternate markets complicated by the rise of the USD. (TradingView) A new tariff threat on China on October 10 kindled intense speculation among risk assets, with crypto feeling the brunt of it. That particular tariff threat sparked probably the largest liquidation of crypto assets, especially in Bitcoin, with almost about $19B in digital assets being liquidated . Plus, the US dollar ( DXY ) had continued its upward trend that started in mid-September this year, reaching ~$99 around that time. Currently DXY sits at $100 and remains range bound. Every investor knows by now that a relatively rising dollar is not good for tech companies since it diminishes the value of their revenue base. Markets continued to ignore these threats in the crypto markets and from the advancing dollar while balancing a very thin line between diverging theories about AI bubbles. Ironically, Sam Altman was one of the first proponents , starting in August this year. Since August, many tech voices have either raised concerns or butted heads against these concerns about the AI bubble. Within the Mag 7 complex, Microsoft’s ( MSFT ) Satya Nadella remains optimistic on AI investments, saying that “their biggest problem was not a glut of data centers, but a lack of them.” This week, Alphabet’s ( GOOG ) Sundar Pichai echoed similar sentiments , calling the AI investments an "extraordinary moment," while still warning there were some "elements of irrationality" in this AI boom. In addition to these views, fears about the circular financing stemming from the trillion-dollar capex commitments that OpenAI was announcing almost every other day were adding more concern than optimism. In my view, the glamour of Big Tech, OpenAI, and all its capex commitments and circular financing was masking another issue creeping up underneath. Fears of the Japanese yen ( USD:JPY ) carry trades unwinding, complicated by the rise of the DXY as I noted earlier, were adding more pressure to the overall global liquidity environment, which is extremely crucial to stock markets but even more important for high beta assets and digital assets, like I explained in my post this week on Bitcoin ( BTC-USD ). I increasingly view Bitcoin as the leading indicator of global liquidity in the markets, so if Bitcoin sells off, it would pay to watch for signs of structural imbalances in the economy even if it means outside of AI. This is what happened so far through much of October and November, including the day that Nvidia reported a robust Q3 ER this week. Markets should actually have jumped on Nvidia’s Q3 ER, and it actually did during after-market hours on Nov 19 and pre-market hours on Nov 20. But liquidations in the crypto market surged to almost $1 billion in a 24-hour window, which is extremely large and abnormal, which confused many investors on Thursday, including Nvidia’s Jensen Huang. I do expect the current liquidity crunch to improve in a few weeks and believe investors should think rationally rather than giving in to fears about AI bubbles. As I explain below, the fears from the current rout have led to quite a few opportunities within the AI ecosystem that are now extremely appealing once again. Segregating Market’s Fears From Rational Investment Opportunities In the past ~2 months, as fears and confusion intensified in the markets, the S&P 500’s forward earnings multiple reached the higher end, >23x. As per the latest data released yesterday , the S&P 500 now trades at a forward multiple of 21.5x, retreating ~8% from its October high of 23.4x. The current PE multiple also trades ~6% higher than its 5-year average of 20x. Further, the S&P 500 trades at the same PE it traded at the start of this year , at 21.5x. Exhibit B: S&P 500 forward PE has come down to ~21.5x closer to its 5 year average of 20x (Macromicro) But when it comes to EPS estimates, analysts project the S&P 500 to report ~11% growth in EPS this year to ~$270.6 per share. In the past 5 years, the S&P 500 has grown its EPS by a ~6-8% CAGR. And next year, the EPS growth should accelerate, with ~14% EPS growth expected in CY26. The expected growth ahead should actually continue to warrant a higher forward earnings multiple of 23-23.5x, which implies upside in the high teens for the S&P 500. Exhibit C: S&P 500 EPS per year vs CY25 and CY26 expectations. (FactSet) However, there are some concerns that still exist in the current market, which mean while investors will get quite a few opportunities to buy shares at current valuations, markets will not give the all-clear signal until the FOMC meeting in early December. Investors now have and will get opportunities to invest in AI and tech spaces over the next few weeks, and in my opinion, selective opportunities in the Mag 7, semiconductor and networking spaces. Among the Mag 7 stocks, Amazon ( AMZN ), Alphabet ( GOOG ) and Microsoft look very interesting. Among semiconductor stocks, Nvidia, Advanced Micro Devices ( AMD ), Broadcom as well as networking stocks like Astera Labs ( ALAB ), Credo ( CRDO ), Celestica ( CLS ) look appealing. Separately, I also believe the software space also looks very appealing, with the backlog beginning to show first signs of growth in at least 15-18 months. Risks & Other Factors To Note At the moment, I see the VIX spiked to 27, which could be one of the earliest signals of a capitulation in the markets. Exhibit D: VIX spiked to +27 this week after Nvidia’s earnings. (TradingView) But I believe markets are going to wait for at least three things before they proceed. First, the crypto markets need to show more signs of health and a return to normalcy. There are rumors of a big player facing mega liquidations. Second, markets need to believe that the equilibrium between BoJ’s interest rate regime and the US Fed will not be disturbed and the BoJ will find a way to maintain stable policy rate decisions despite fears of the Japanese yen falling further. BoJ’s next meeting falls on Dec 18-19 . But before that, and most importantly, all eyes will be on what the US Fed does and says. Therefore, thirdly, the US Fed’s actions, decisions, and projections on Dec 9-10 will be ultra crucial to mold the market’s perspectives of its path ahead. US Feds did calm the markets somewhat yesterday. For now, NYFed Chairman, part of the leadership troika at the US Fed, did calm markets after saying that “there is more room to lower rates without spiking inflation.” Markets did calm down on Friday after the volatile whipsaw post Nvidia’s ER. So no matter how bullish I am about the next year or how much I believe in AI, I do strongly suspect much of the next 2 weeks will be spent in picking on clues about interest rates, broader market stability and global liquidity and I strongly recommend investors focus on these macro factors first. Takeaway The past few weeks have been tough for investors, with diverging conversations increasingly showing up for and against AI, dividing investors over the growth prospects of AI. However, as explained above, I believe macro factors like liquidity and interest rate uncertainty are more to blame than fears about AI bubbles. I strongly urge investors to remain calm, stay rational, and be selective in the opportunities they pick to benefit from alpha in a market that is now giving more opportunities to investors due to the irrational fears about AI bubbles.
