Growing anxiety and speculations about a potential "AI bubble" have soured the investors' sentiment, and markets are bracing for this week's Nvidia earnings report, which is set to show how much the world's largest company has boosted its profits and what it anticipates in upcoming quarters.
The concerns are related to this year's record rally in tech stocks, linked mainly to the artificial intelligence boom, which has now made some traders question whether the billions spent on the industry might not see the big returns as soon as hoped.
Compounding the negativity are concerns that the U.S. Federal Reserve (Fed) will decide against a third-straight interest rate cut next month, as stubborn U.S. inflation plays up against a weakening jobs market.
The rally this year has been driven by the fears of missing out on the AI bandwagon and bets on U.S. borrowing costs coming down.
That has put two major events this week well in the spotlight.
Wednesday sees Nvidia – at the forefront of the AI push with its top-end chips – release its latest earnings report, which will be pored over for an idea about the outlook for the sector.
Reports from retailers Home Depot, Target and Walmart will also give an insight into consumer sentiment.
Investors have become sensitive to any negative news surrounding the AI universe, and were given a jolt this week when it emerged that tech billionaire Peter Thiel's hedge fund had offloaded all its Nvidia stake, which Bloomberg valued at about $100 million.
Earlier this month, Japan's SoftBank also dropped all of its remaining Nvidia stake, worth about $5.8 billion. Late in October, the Santa Clara-based company became the first in the world to break $5 trillion in valuation, but it has since erased billions in its market cap.
Currently, its cap is set at $4.55 trillion with stock nearly 40% up year-to-date.
Neil Wilson at Saxo Markets said in a note: "Analysts are sounding upbeat ahead of the report. But the bar is set very high, and we know that if investors are starting to wobble, the whole house of cards can come crashing down at any point."
"Profitability at the stocks at the heart of the AI bubble remains very strong, but any weakness evident in the (third quarter) from Nvidia would be punished hard by markets."
Meanwhile, Thursday is expected to see the release of the U.S. September jobs report after delays due to the government shutdown. The data will provide a fresh snapshot of the world's No. 1 economy and give an idea about the chances of another rate cut.
The chances of a December reduction are around 50-50, with Fed officials recently flagging concerns about inflation more than the jobs market.
Fed Chair Jerome Powell said last month that another cut at its December policy meeting was not a "foregone conclusion," a comment that has been echoed by a number of colleagues.
