Nvidia has suffered a sharp sell-off, and Apple has retaken the top spot in global market capitalization. What signal does this send?

At the close of U.S. stocks on Monday, Nvidia fell nearly 5% while Apple rose more than 1%. The former's market value dropped to about $4.77 trillion, and the latter reclaimed the top spot globally with $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 on the surface to be a normal market fluctuation, but behind it lies a set of completely distinct signals being sent by the credit market.

On the same day, Nvidia's 5-year CDS once rose by about 14 basis points during the session, peaking at about 82 basis points per year, marking the largest intraday increase for the contract since it became actively traded last November. Purchasing 5-year default protection for $10 million of Nvidia's debt costs about $82,000 per year.

Manish Kabra, Head of U.S. Equity Strategy at Societe Generale, put it more bluntly: "For hyperscale computing power enterprises, we should now look at CDS instead of EPS."

CDS, or Credit Default Swap, is used in the bond market to price a company's debt repayment risk. A rise in CDS indicates that the bond market believes the company's credit quality is deteriorating. Nvidia is the most profitable chip company in the world, with revenue of $215.9 billion, net profit of $120 billion, and free cash flow of $96.7 billion in fiscal 2026 — its CDS has skyrocketed not because the market is worried about its profitability, but about what it is doing.

Since the start of 2026, Nvidia's stock price has only risen by 4%, while Apple's has risen by 24%. This gap did not form by accident. Apple has always remained restrained in AI capital expenditure, preferring to lease computing power rather than build self-owned infrastructure, and its capital expenditure has continued to decline in the past three quarters.

While Nvidia and a number of tech giants have bet hundreds of billions of dollars on AI infrastructure, Apple has taken a different path. Jay Woods, Chief Market Strategist at Freedom Capital Markets, commented directly: "Apple was once criticized for insufficient AI investment, but now it turns out that it has successfully avoided the capital expenditure trap."

"Circular Financing": $250 Billion Guarantee Is 4 Times Its Cash Reserve

What is Nvidia doing?

According to a July 26 report by The Wall Street Journal, Nvidia is in negotiations with OpenAI, planning to provide about $250 billion in financing guarantees to help OpenAI secure computing power for the 10GW-level data center project that SoftBank Group is developing in Ohio. At the same time, Nvidia is also discussing providing financing for OpenAI's $350 billion chip procurement project. Together with the previously announced cooperation of over $500 billion with SK Group, the scale of Nvidia's potential AI infrastructure transactions has exceeded $750 billion.

One figure is worth repeated consideration: as of the end of fiscal 2026 (January 25), Nvidia's total cash and marketable securities held amounted to about $62.6 billion. The $250 billion guarantee is approximately 4 times this cash reserve. And Nvidia's latest 10-Q filing shows that the total disclosed upper limit of facility lease guarantees for partners is only $3.5 billion — $250 billion is 71 times that amount.

The Wall Street Journal calls this model "Credit Wrapper": investment-grade tech giants use their own balance sheets to finance off-balance-sheet companies, helping them obtain low-cost debt that they would not otherwise be able to access. Neither OpenAI nor Anthropic currently has an investment-grade credit rating.

The core of the issue lies in its "circular" nature: Nvidia provides financing or guarantees for customers, and these customers in turn purchase Nvidia's chips. OpenAI has raised its computing power expenditure budget before 2030 from about $600 billion to about $750 billion.

Gary Tan, Portfolio Manager at Allspring Global Investments, said: "More and more capital is being used to fund future AI customers and infrastructure deployment."

Sal Naro, Chief Investment Officer of Coherence Credit Strategies, calls this model "financial alchemy", worrying that "opaque, off-balance-sheet transactions and inter-company relationships" may lead to credit rating downgrades.

This model is not unique to Nvidia. Google has agreed to guarantee lease payments for Anthropic at five data center locations, helping the OpenAI competitor obtain loans equivalent to about $35 billion. The logic is the same: large companies use their own credit endorsement to help AI companies get low-cost financing, and these AI companies in turn consume the cloud services, chips or computing power of these large companies.

Jensen Huang, CEO of Nvidia, responded to such doubts in January this year when talking about investing in CoreWeave: "This is only a very small part of the total funds they eventually need to raise. The claim that this is circular financing is simply absurd." He believes these investments can not only boost Nvidia's own business, but also bring investment returns.

With the two claims on the table, the market has temporarily chosen the former. Renowned investor and the real-life prototype of the *The Big Short* film Michael Burry is also increasing his short position in Nvidia, and posted on Substack on July 25 to further expand his short position, citing the 2026 annual report of the Bank for International Settlements (BIS) that a large amount of Nvidia's current and future demand "does not come from end customers, but is circularly driven by off-balance-sheet financing arrangements". Burry previously predicted that the semiconductor sector would face a correction of about 30%.

From Nvidia to Oracle: The Credit Confidence Crisis Spreads

Nvidia is not the only company whose CDS is rising.

According to LSEG data, CDS prices of Oracle, SpaceX, Alphabet, Amazon, Meta and Broadcom have all risen to record highs recently.

Oracle's situation is particularly severe. 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 expects Oracle's capital expenditure in fiscal 2027 to reach $900 billion to $950 billion, and operations will consume about $42 billion in cash, far higher than the previously estimated $24 billion. S&P also pointed out that OpenAI accounts for about half of Oracle's remaining performance obligations — the risk of customer concentration is relatively high.

Oracle's 5-year CDS was quoted at 215 basis points on Monday, compared with 144 basis points at the beginning of the year. Its 10-year bond yield is about 6.4%, close to the 6.7% of BB-grade (junk grade) bonds, far higher than the 5.7% of the BBB-grade curve. Moody's maintains a negative outlook on Oracle, meaning there may be further downgrades in the medium term.

Alphabet's situation is also noteworthy. The Q2 earnings report released on July 22 showed revenue of $119.8 billion, up 24% year on year. Google Cloud's revenue surged 82% to $24.8 billion, and the cloud business's backlog of orders exceeded $500 billion for the first time. However, in the same period, capital expenditure doubled to $44.9 billion, and free cash flow fell to negative $5.9 billion — the first time since Alphabet went public more than two decades ago. Alphabet also raised its full-year capital expenditure guidance to $195 billion to $205 billion, and expects expenditure in 2027 to continue to grow significantly. Its CDS rose to a record high of 67 basis points on Monday.

Meta's signal is more glaring. The latest financing cost for raising funds for its $12 billion data center in Texas has risen sharply, approaching the level of junk-grade bonds. John Aylward, Chief Investment Officer of Sona Asset Management, said the debt is "priced in line with the current trading level of B- bonds".

Aylward said bluntly: "The credit market cannot cope with uncertainty, and the pace and cost of AI financing are extremely unpredictable, which is triggering a serious confidence crisis."

George Catrambone, Head of Americas Fixed Income at DWS Group, pointed out that buying CDS has become a tool for investors to hedge against credit rating downgrades: "Hedging is becoming more and more common, especially after seeing these capital expenditure figures following earnings releases. A huge amount of debt has been issued, but the increase in revenue has not necessarily been proven. The market is exerting more and more scrutiny."

Bond Market Pressure Transmits to the Stock Market

The signals from the credit market have begun to transmit to the stock market.

On Monday, the Philadelphia Semiconductor Index fell 2.23%, Nvidia fell nearly 5%, AMD fell about 5%, and ASML fell more than 5%.

The reaction in the South Korean market was even more drastic. During Tuesday's session, SK Hynix's decline once reached 11.1%, Samsung Electronics' decline reached 9.5%, and the Korea Composite Stock Price Index (KOSPI) once fell by 10%. The Korea Exchange launched the SIDECAR mechanism to suspend programmatic selling. The U.S.-listed stock of SK Hynix closed at $143.02, already falling below its IPO issue price of $149.

Han Ji-young, an analyst at South Korean brokerage Kiwoom Securities, pointed out that this round of sell-off is superimposed with multiple factors: AI infrastructure financing risks, the impact of low-cost open-source AI models from China (such as Kimi K3) on computing power demand expectations, and competition concerns triggered by CXMT's listing.

At the same time, data center construction is also facing policy-level resistance. New York State has implemented a one-year ban on new data centers, and multiple states including Maine, Minnesota, Michigan and Pennsylvania are considering similar legislation.

Why Apple Won: The "Asset-Light" AI Path Has Been Reassessed by the Market

Since the start of 2026, Nvidia's stock price has only risen by 4%, while Apple's has risen by 24%.

Apple remains cautious in AI capital expenditure, and prefers to lease computing power rather than build self-owned infrastructure. Over the past three quarters, Apple's capital expenditure has continued to decline. While Nvidia and a number of hyperscale cloud service providers have bet hundreds of billions of dollars on AI infrastructure, Apple has taken a different path. Jay Woods, Chief Market Strategist at Freedom Capital Markets, said: "Apple was once criticized for insufficient AI investment, but now it turns out that it has successfully avoided the capital expenditure trap."

Nvidia once briefly touched a market value of $5 trillion back in October last year. Since then, the market's doubts about the sustainability of AI infrastructure have continued to deepen, and Nvidia's valuation premium has begun to narrow.

Apple's test is on Thursday. After the market closes on July 30, Apple will release its fiscal 2026 Q3 earnings report — this is also the last earnings call before Tim Cook steps down as CEO, and John Ternus will take over on September 1. Consensus expectations from analysts are for revenue of about $108.8 billion to $110 billion, EPS of about $1.89, and gross margin expected to be 47.5% to 48.5%, lower than the 49.3% of the previous quarter — the rising price of memory chips is eroding hardware profits.

In June, Apple had already raised the prices of Mac and iPad due to memory chip shortages. The market expects this earnings report to quantify for the first time the actual financial impact of the AI-driven global memory chip shortage 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 new focuses of attention.

David Brown, Co-Head of Global Investment Grade at Neuberger Berman, raised the core question of the market: "The biggest question is whether this level of capital expenditure will grow permanently, and when we can see the inflection point back to positive cash flow? We will not have the answer in the short term, which explains the weak performance."

He further warned: "This could become a problem, because there is still such a huge amount of financing demand in the industry waiting to be fulfilled."

What to Focus on Next

First, Apple's earnings report on Thursday. Focus on three sets of figures: whether gross margin can hold 48% (the impact of rising memory chip prices), whether the growth rate of the service business remains double-digit (the core support for Apple's valuation premium), and the management's guidance for Q4 gross margin (whether memory costs have peaked). Cook's statements about the CEO handover will also be interpreted word for word.

Second, the trend of CDS. If the CDS of Nvidia, Oracle, Alphabet and Meta continue to climb, the confidence crisis in the credit market will further transmit to the stock market. Manish Kabra of Societe Generale has already given a new observation framework: look at CDS, not EPS. If Oracle's CDS breaks through the current 215 basis points and continues to rise, it may trigger Moody's to follow up with a downgrade.

Third, the final implementation of Nvidia's financing transactions. If the $250 billion guarantee is signed, the doubts about "circular financing" will deepen; if the terms are scaled back or the transaction is delayed, it may mean that the pace of AI infrastructure investment begins to slow down. At the same time, pay attention to the change in the guarantee ledger in Nvidia's next quarter 10-Q — track it starting from the current baseline of $3.5 billion.

Fourth, whether the South Korean market can stabilize. SK Hynix falling below the $149 IPO issue price is a psychological threshold, and the subsequent trend of KOSPI will reflect the degree of the market's revision of AI chip demand expectations. Whether the shipment volume of HBM4 chips grows as expected is the fundamental key for SK Hynix to stop its decline.

Fifth, regulatory developments for data centers. Whether New York State's data center ban will prompt more states to follow up will directly affect the physical expansion pace of AI infrastructure. The decision of Commerce Secretary Lutnick on power allocation for the Ohio project will also affect the progress of OpenAI's computing power layout.

This article does not constitute personal investment advice and does not represent the views of the platform. The market is risky, investment needs to be cautious, please make independent judgments and decisions.

This article is from the WeChat official account "Wall Street CN", author: Long Yue, authorized for release by 36Kr.