Wall Street could still finish the year on a high note, even as technology stocks struggle and the artificial intelligence slump deepens.
The Nasdaq Composite slid 0.84 percent on Monday as major tech names, including Apple, Meta and Oracle, all declined more than one percent. Nvidia, a bellwether for AI growth, dropped nearly two percent ahead of its highly anticipated third‑quarter earnings report.
Nvidia, widely considered one of the linchpins of the AI revolution alongside OpenAI, carries enormous expectation around its future growth.
In October, CEO Jensen Huang said the company had “half a trillion dollars” of business under contract for 2025 and 2026. But with its share price sagging, investors are bracing for any guidance from the upcoming earnings that fails to impress.
Analysts have raised concerns that a modest outlook for chip demand could trigger a sharper drop, given how central Nvidia is to the AI ecosystem.
That makes the stakes unusually high, even as other tech giants also grapple with valuation pressure and capital spending concerns.
Some market watchers, however, argue that the pullback may be overdone and that a year‑end rally is still within reach.
Michael Graham, an analyst at Canaccord Genuity, said in a Monday note that his firm “continues to see a balance of bullish and bearish signals heading into year end but our stance remains that a year end rally is likely.”
He pointed to improving macro data and signs of resilient corporate earnings as underlying support for risk assets. HSBC’s chief multi‑asset strategist, Max Kettner, echoed that view.
He told clients that “the probability of a melt up into year end particularly in equities is much greater than a potential AI bubble popping.”
At the same time, other strategists remain cautious. Ross Mayfield, an investment strategist at Baird, warned that “if Nvidia offers even slightly muted guidance on demand for its chips the market would take that poorly.”
Given Nvidia’s role in powering generative AI, any sign of slowing demand could ripple through the broader technology sector.
Recent market data underscores the tension. After weeks of gains, the Nasdaq has retraced much of its rally, dragged lower by big tech names.
Nvidia, which had surged earlier this year on optimism about AI workloads, has lost nearly two percent in the last session alone.
Capital spending data in the semiconductor space has been mixed. Some chipmakers have cut back on investment, citing macro uncertainty, while others report continued strength in enterprise demand.
Meanwhile, valuations remain lofty in parts of the tech sector, prompting questions about how much more optimism is already priced in.
On the macro front, inflation seems to be cooling modestly and interest rate markets are increasingly pricing in a possible slowdown in rate hikes. Those shifts could reignite risk appetite and fuel a year‑end rally if investor confidence rebounds.
Market participants are expressing a mix of caution and hope. “Seeing Nvidia pull back does make me nervous,” said Alicia Chang, a portfolio manager at a mid‑sized institutional fund in New York.
“But there’s still strong demand for cloud infrastructure, so I wouldn’t rule out a rally as we head into December.”
Retail investors are also watching closely. “I added to my tech exposure today,” said Jamal Karim, an individual investor based in San Francisco. “If there’s a year end rally, I don’t want to be left out. But I’m also braced for some volatility.”
On the sell side, analysts are torn. “We’re in a complex environment,” said Priya Desai, an equity analyst at a boutique research firm in London.
“There’s real risk around AI, but also real underlying momentum in earnings. That tug of war could shape whether a year end rally materializes.”
Much depends on Nvidia’s upcoming earnings report. Investors will scrutinize not only revenue and profit, but also how the company sees demand shaping up in 2025 and 2026.
If Huang and his team deliver upbeat commentary, that could reignite bullish sentiment and fuel further gains in tech. On the other hand, if guidance disappoints, the broader AI slump could deepen.
Beyond Nvidia, broader macro conditions will be critical. Any sign of slowing inflation or a dovish pivot from the Federal Reserve could reignite strength in growth stocks.
Conversely, renewed rate hawkishness would likely dampen hopes for a year end rally. Strategists also point to liquidity as a key driver.
With many investors locking in gains or repositioning their portfolios, a surge of fresh money into equities could spur short term upside. But that depends on investor risk appetite and how much capital is available to flow back into growth.
As the market navigates the tension between lofty AI expectations and recent pullbacks, some strategists remain cautiously positive that a year end rally is still possible.
Whether that optimism will pay off depends heavily on Nvidia’s earnings outlook and broader macro signals. For now, investors appear to be balancing their hopes for a strong finish against the risks posed by an AI slowdown.