AI & Investments - Will We Get a Year-End Rally?

Wall Street has a favorite bedtime story: "Don't worry, we'll rally by year-end." They're telling it again this week, even as the Nasdaq dropped 0.84% Monday and Nvidia shed nearly 2% ahead of its Wednesday earnings call. The narrative is seductive—analysts at Canaccord Genuity and HSBC insist the probability of a "melt-up" in equities is higher than an AI bubble pop. Translation: keep buying, worry later.

According to CNBC, investors are watching Nvidia CEO Jensen Huang's Wednesday earnings report with particular intensity. In October, Huang claimed the chipmaker had "half a trillion dollars" in orders for 2025 and 2026 combined. That's not a forecast—it's a prayer dressed as a data point. Baird investment strategist Ross Mayfield put it plainly: "If they offer any even slightly muted guidance or forecast for demand for their chips, the market would take that poorly."

So let's be clear about what's happening. The market is pricing in perfection from a company that needs to justify valuations built on the assumption that AI spending will continue accelerating indefinitely. Any hesitation, any whisper of demand softening, and the whole house of cards wobbles.

The Anatomy of Optimism During Bubbles

Here's what nobody wants to admit: analysts calling for year-end rallies during corrections is textbook bubble behavior. It happened in 1999. It happened in 2007. Optimism isn't a bug in these cycles—it's a feature. Because if analysts started telling clients to sell, the sell-off would accelerate, validating their pessimism and destroying their relationships with the very companies they cover.

Michael Graham at Canaccord Genuity wrote that he sees "a balance of bullish and bearish signals" but expects a rally anyway. HSBC's Max Kettner thinks the "melt-up" scenario is more likely than a bubble pop. These aren't analyses—they're wishes. They're what you say when the alternative is too expensive to contemplate.

Meanwhile, the actual data tells a different story. Apple, Meta, and Oracle all retreated more than 1% Monday. Technology stocks are under pressure over concerns about "high valuations and capital expenditure"—the polite way of saying companies are spending billions on infrastructure with uncertain payoff timelines. Fed officials are split on whether to cut rates in December, with Governor Christopher Waller focused on labor market weakness while Vice Chair Philip Jefferson warns about proceeding slowly.

Nvidia: The Canary in the Coal Mine

Nvidia is the bellwether. Not just for AI, but for the entire thesis that justifies current tech valuations. If Huang delivers on Wednesday and reaffirms strong 2026 growth, the rally narrative gets oxygen. If he hedges, if he suggests any softening in demand, the market reprices everything.

The problem is that Nvidia has become "the Hermès of the chip industry," according to one analyst quoted by CNBC—meaning it's so dominant, so essential, that any weakness signals systemic problems rather than company-specific issues. When Hermès struggles, it's not because they made bad handbags. It's because luxury spending is collapsing.

Same logic applies here. If Nvidia can't meet expectations with $500 billion in claimed orders, it's not an execution problem. It's a demand problem. And demand problems in AI infrastructure spending ripple out to cloud providers, enterprise software companies, and every startup that raised at a 50x revenue multiple because "AI is the future."

What Happens If They're Wrong

Let's game this out. Scenario one: analysts are right, we get a year-end rally, everyone celebrates through January, and we "worry about AI in the new year" as CNBC suggests. Scenario two: Nvidia disappoints, the sell-off accelerates, and all those bullish forecasts age like milk.

The incentive structure guarantees analysts will stay optimistic as long as possible. They have relationships to maintain, investment banking fees to protect, client portfolios to justify. Pessimism is career poison in a bull market—even when the bull is limping.

But here's the tell: India's trade deficit hit a record $41.7 billion in October, nearly 50% worse than estimates, driven by gold imports during Diwali. According to the same CNBC report, wealthy investors are now leasing their gold bars to refiners and jewelers for yield. When the rich start treating gold—the ultimate safe-haven asset—as an income generator, it's not because they're confident about risk assets. It's because they're hedging.

The Rally Nobody Needs

A year-end rally built on hope rather than fundamentals is just volatility waiting to resolve downward. The market doesn't need another sugar rush before the crash. It needs honest price discovery. It needs companies to prove their AI investments generate returns, not just press releases.

Nvidia reports Wednesday. The analysts have made their predictions. And somewhere, a configuration file is growing too large.

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