US stocks staged a recovery rally on Tuesday, hot on the heels of Monday’s sell off. Nvidia jumped by 8%, after dropping nearly 17% on Monday. This suggests that the bargain hunters are in town, although the failure to see a complete reversal of Monday’s losses could suggest a permanent loss of value for Nvidia.
Nvidia was the best performer out of the Magnificent 7 on Tuesday, and along with Microsoft and Meta, it was also one of the top performers on the S&P 500. However, even accounting for today’s rally, semiconductor stocks remain pressured to the downside. The semiconductor index in the S&P 500 has gone from hero to zero in 2025. The prospect of a credible Chinese threat to US AI dominance, has triggered a sharp sell off in Nvidia, AMD etc., and this sector index is one of the top ten weakest performers in the S&P 500 so far this year, and is down nearly 5%.
As we have mentioned, Nvidia is no stranger to steep sell offs. It has experienced 8 of the 10 biggest stock sell offs according to market cap, and it has always bounced back. However, there is a feeling in the market that this time could be different. Essentially, DeepSeek is spurring rapid rethink about Nvidia. Will it continue to record monster revenue and profit margins, if its most expensive chips are unnecessary for the best inference models? This was not a widespread concern a week ago, but it is now the main question that needs to be asked when buying Nvidia stock.
For now, bargain hunters have helped Nvidia’s stock price to partially recover, but will it reach the valuations from last week, we think not. There will be winners and losers from China’s dramatic entrance into the AI race this week. Those who are the buyers of chips, such as Meta and Amazon, could see their costs fall, which is better for their bottom line and thus their stock prices. However, the producer of chips, such as Nvidia and AMD, may see a structural shift in demand. This is also why ASML, the maker of equipment used in the production of chips, failed to recover on Tuesday after a 12% decline in the last 5 days. However, ASML did rally slightly in the post market on Tuesday evening.
This is an important week for tech stocks, can a strong set of earnings reports fuel another leg of the recovery? The alternative view is that DeepSeek acts like a brake on stock market appreciation, since these earnings may not factor in the impact of cheap Chinese competition in the future.
What to expect from earnings season:
More than half of the Magnificent 7 will report earnings this week, including Microsoft, Meta and Tesla on Wednesday and Apple on Thursday. There is a lot resting on these reports, even if they may seem behind the curve after this week’s tech-led sell off.
These earnings results still matter. The market is expecting a sharp slowdown in earnings growth for tech companies, even if this sector is set to outperform other sectors in the US equity market. Apple could be particularly at risk, especially as reports suggest that demand for iPhones in China has slowed sharply. Analysts have revised down their expectations for Apple’s earnings growth for the last quarter, and now expect revenues of $124.22bn and profits of $35.5bn. Analysts expect China sales to rise by 4% for the prior period, which could be tough to achieve based on recent estimates of Apple sales in China. However, while China is likely to be a weak spot in this earnings report, service growth could neutralize a worse than expected surprise from China.
The risks are to the downside for Apple’s earnings. Even though analysts have scaled back their expectations in recent weeks, estimates for last quarter’s earnings are significantly higher than recent quarters. Thus, if China does weigh on Apple’s results, there is a lot of slack for its other business units to pick up.
Apple has been one of the weakest performers in the Magnificent 7 so far this year, and its share price is down 4%. Thus, if earnings are roughly in line, this could spark a recovery rally. Market sentiment remains jittery, so a weaker than expected earnings report combined with fears about Chinese competition in the AI space, could take another bite out of Apple’s share price.
In contrast, Meta has been the top performer in the Magnificent 7 so far in 2025, and it has announced another boost to its capex plans for this year. It said that capex would increase by 60% this year to between $60bn – $65bn, as the company builds more data centres for AI capability. Expect tough questions on the earnings call, as cheaper Chinese alternatives could lead some to believe that Meta’s capex spend is too high. However, we have been impressed by Meta’s resilience on the back of the tech sell off this week. As mentioned above, Meta could be a beneficiary from more competition in the chip market, and the potential break down of Nvidia’s monopoly-like pricing structures.
In sharp contrast to Apple, its share price is up 14% YTD. We think that an earnings miss from Meta could be detrimental to its share price, since it is priced for perfection. Analysts are expecting revenues to come in at $46.93bn for the previous quarter, with net income at $21.29bn. At some point investors may want to see a return for all its capex spend on AI. Unlike Google or Microsoft, who are already using AI in their products, it is less clear how Meta is monetizing AI at this stage. At some point investors’ patience may run out.
Luxury sector could slip, as LVMH misses the mark
In contrast to its peers, LVMH’s earnings report was disappointing for last quarter. Revenues at its fashion and leather goods brands such as Luis Vuitton, fell by 1%, suggesting that demand for luxury remains fragile. The company did report some good news in its jewelry division, with a pickup in sales for Tiffany. This suggests that consumers are favouring ‘hard’ luxury products – ones that last and can be passed on like heirlooms, instead of ‘soft’ luxury like clothes and handbags.
It has been a tough week for LVMH, after it announced that it had sold its loss-making Stella McCartney brand back to the founder, and after France revealed that champagne shipments dropped more than 9% last year to their lowest level since 2001. LVMH’s US-listed share price was down 5% late on Tuesday and there could be further losses on Wednesday. Luxury shares have been propping up the European stock market so far in 2025, and luxury was the best performing sector. However, after staging a strong rally over the past week, LVMH slipped on Tuesday, suggesting that the luxury rally may need to be backed up by earnings reports for it to extend gains in the coming months. Although Burberry and Richemont reported decent recoveries last quarter, LVMH is still the bellwether for the entire sector. If its share price falls on Wednesday, then it could drag the rest of the luxury sector with it, and it may also weigh on the broader Eurostoxx index.
