Debt worries seep into the AI trade ahead of Nvidia earnings

Good morning. The most notable thing in the market yesterday was the wobble in AI stocks. China's Alibaba announced a share sale of more than 10 billion dollars in Hong Kong to fund its AI spending, investors balked, and the shock spread through Asian tech to Nasdaq futures. US stocks ended the day mixed.

What worries the market is that AI is running on borrowed money. Speculative leverage has been unwinding, which has calmed chip stocks, but there are warnings that debt at big players like Alphabet and Nvidia keeps moving on and off their balance sheets. JPMorgan added to the unease by saying the pullback of recent weeks is more than a simple breather. Against that, bulls note that demand for chips, data centers and power already exceeds supply, which makes this boom different from past bubbles.

The geopolitical backdrop is messy too. Washington announced its toughest economic sanctions ever on Iran, yet oil prices fell, because the market had priced in much of it. How the sanctions apply to China, Iran's biggest oil buyer, remains the open question. Talks between the US and Canada collapsed, 50% tariffs now apply to Canadian goods, and the Canadian dollar dropped sharply.

To soothe the bond market, the Treasury said it can use its large cash account to fund buybacks, but investors see this as moving money around rather than a big new bazooka. All eyes now turn to Nvidia's earnings on Wednesday and the Jackson Hole speech on Friday.