The "culprit" behind the sharp decline in US stocks! NVIDIA plummeted 7% during the day, and the "big short" intensively "fired" after the earnings report

No matter from which angle, NVIDIA's financial report and comments are positive. As Goldman Sachs' top trader Ryan Sharkey pointed out: when good news does not receive corresponding returns, it is often a bad signal.

On Thursday, NVIDIA opened up 5% to $196, but then plummeted significantly, closing down nearly 3% to $180.98, with an intraday cumulative decline of 7%, marking the lowest closing price since October 22. This sharp reversal directly dragged the S&P 500 index down about 3%.

Goldman Sachs Vice President Ryan Sharkey noted in an intraday report:

Despite many catalysts for U.S. stocks to digest, the approximately 3% reversal in the S&P 500 index was clearly driven by NVIDIA's approximately 7% reversal, which evidently dampened the sentiment for a year-end rebound.

Data shows that the stocks with the largest gains over the past 12 months fell by 4.4%, retail-favored stocks dropped by 3.6%, and high-valuation software stocks decreased by 2.3%.

(Stocks with the largest gains over the past 12 months fell by 4.4%)

Meanwhile, "big short" Michael Burry posted multiple times on social media after the earnings report, questioning the lifespan of NVIDIA chips, stock dilution, and the "circular financing" among AI companies. He believes the real demand for AI is "ridiculously small," with almost all customers funded by dealers.

Positive Earnings Report Fails to Change Market Sentiment

NVIDIA's adjusted earnings per share for the third quarter were $1.30, exceeding Wall Street's expectation of $1.26. Revenue reached $57 billion, a year-on-year increase of 62%, surpassing the expected $54.9 billion.

The company expects the median revenue for the fourth quarter to be $65 billion, higher than the market expectation of $62.2 billion, indicating that the growth rate will accelerate to 65%.

CEO Jensen Huang stated in a statement that sales of the company's new generation Blackwell hardware are "very hot." CFO Colette Kress revealed during the analyst conference call that chips sold six years ago are still being fully utilized by customers.

However, this strong earnings report failed to eliminate the market's fundamental doubts about the AI bubble.

The 22V Research team wrote in a report on Thursday:

Even NVIDIA's optimistic earnings report is not enough to reverse the recent market headwinds. For the past two weeks, the market has been leaning towards risk aversion, with low-volatility stocks dominating across various market capitalizations.

This trend continued on Thursday, with risk assets suffering heavy losses, the S&P 500 index falling 1.6%, and the Nasdaq dropping 2.2%, while defensive stocks were boosted by Walmart's strong earnings report.

Technical Indicators and Liquidity Crisis Concurrent

Goldman Sachs listed several concerning indicators in its technical analysis checklist.

CTA trend strategies are generally bearish on the stock market and are expected to continue selling. Goldman Sachs pointed out the need to closely monitor the mid-term key level of 6457 points in the S&P 500 index. (CTA trend strategies are generally bearish on the stock market)

Market liquidity has also significantly deteriorated. The average liquidity of the S&P 500 index's buy-sell orders has dropped to $6 million, below 80% of the time over the past year, indicating that the market's buy-sell depth is extremely thin, and small trades can trigger sharp price fluctuations.

(Goldman Sachs simulated recent liquidity trends and expectations for the next month)

In addition, Goldman Sachs predicts that Friday's options expiration will be the largest nominal open interest expiration in November in history, with an estimated $3.1 trillion in nominal options exposure expiring, including $1.7 trillion in S&P 500 index options and $725 billion in single stock options.

"Big Short" intensifies after earnings report

After Nvidia reported better-than-expected earnings, Michael Burry posted a series of messages on platform X questioning the company and the AI industry.

In response to Kress's statement about the continued utilization of old chips, Burry wrote:

This confuses physical utilization with value creation. Just because something is used does not mean it is profitable.

He cited airlines retaining old planes during holidays as an example, stating that these planes "are barely profitable and worth nothing."

Burry emphasized that the energy efficiency of Nvidia's old chips is far lower than that of new chips, and customers continuing to use them may pay higher electricity bills.

Burry also questioned the complex multi-billion dollar "circular financing" between Nvidia and AI companies like OpenAI, Microsoft, and Oracle, stating:

The actual end demand is laughably small, and almost all customers are funded by their distributors.

In another post, Burry pointed out that Nvidia has repurchased nearly $113 billion in stock since early 2018, but the number of shares outstanding has actually increased by 47 million shares. He stated:

While stock compensation during the same period was $20.5 billion, the real cost of stock compensation dilution was $112.5 billion, reducing owner earnings by 50%.

Burry has previously issued multiple warnings about the AI bubble, comparing the AI boom to the internet bubble.

According to regulatory filings, as of the end of September, his Scion Asset Management held put options on 1 million shares of Nvidia and 5 million shares of Palantir, with nominal values of $187 million and $912 million, respectively.

Burry has recently converted Scion Asset Management into a family office and will no longer accept external clients