Key Takeaways:
A record wave of bullish options betting has pushed US equity markets into a precarious position, with Nvidia Corp.’s upcoming earnings on May 20 set to test the stability of a rally built on extreme concentration in artificial intelligence stocks.
"The next phase of digital infrastructure value creation will be shaped by the control of power," Fred Thiel, CEO of Marathon Digital, said on the company's recent earnings call, highlighting the intense focus on infrastructure supporting AI. This sentiment has fueled a speculative frenzy, with one recent session seeing a historic $2.6 trillion in nominal S&P 500 call option value trade, according to SpotGamma.
This surge in call buying, where call options accounted for 60 percent of total volume, has created a positive feedback loop where market makers’ hedging activity suppresses volatility. However, this has also led to a dangerously narrow market. The Relative Strength Index for the Philadelphia Semiconductor Index recently climbed to its highest level since the dot-com peak in March 2000, while Oppenheimer noted that only about one-fifth of S&P 500 components have outpaced the index itself over the past month.
The structure’s fragility may be exposed following the monthly options expiration, which removes a key layer of stabilizing hedging flow from market makers. With Nvidia’s results looming days later, investors are bracing for a potential volatility repricing, where a disappointing report could quickly reverse the mechanics that have supported the market's linear ascent, triggering a rapid unwind of leveraged positions.
The market's fate is deeply intertwined with Nvidia, which has evolved from a chipmaker into the central pillar of the AI economy. The company, now valued at over $5.2 trillion, has reportedly committed more than $40 billion to AI equity investments in early 2026, including a staggering $30 billion in OpenAI and billions more in firms like data center operator IREN Ltd., according to a CNBC report.
This strategy of investing in its own customers creates a powerful, self-reinforcing ecosystem but also concentrates risk. Goldman Sachs recently raised its 2026 and 2027 earnings forecasts for Nvidia by 14 percent and 34 percent above consensus, respectively, showing how high expectations are. Any failure to meet these lofty goals could have an outsized impact, not just on Nvidia but on the web of companies, from AI startups like Anthropic to cloud providers, that depend on its technology and capital.
While semiconductor and AI-related stocks have soared, the broader software sector has shown signs of stress. Figma, a cloud-based design software company, has seen its stock fall 83 percent from its post-IPO peak on concerns that AI-native programs could disrupt its business.
Yet, there are signs of resilience. The iShares Expanded Tech-Software ETF has rebounded more than 20 percent from its recent lows, suggesting that fears of an AI-driven "SaaSpocalypse" may be overblown for some. This divergence highlights a market increasingly split between the AI haves—like Nvidia and its direct partners—and the have-nots, who face a more uncertain future. The upcoming earnings report will provide a critical data point on whether the AI momentum can continue to lift the entire market or if the concentration of risk is about to matter.
This article is for informational purposes only and does not constitute investment advice.
