AI chip race powers December equity rally as traders position for year-end flows
AI leaders extended a broad risk-on move in global equities, with investors rotating toward data and cloud names and away from some semiconductor incumbents as Alphabet’s newest TPU ups the pressure on Nvidia. Strong Black Friday spending and rising BNPL usage added a consumer tailwind while FX desks watched month-end rebalancing flows.
Stocks: December bounce builds as AI trade reshuffles
- S&P 500 gained 1.44% in early December trading, while the Euro Stoxx 50 rose 1.87%, as risk appetite improved and liquidity conditions brightened into year-end.
- AI-linked shares outperformed on the back of bullish quant ratings and refreshed price targets. Traders highlighted Snowflake as a potential beneficiary of the data infrastructure build-out, with some rotation pressure noted on Broadcom.
- Alphabet’s latest chip development underscored intensifying competition in AI compute, helping lift mega-cap tech sentiment and reinforcing the market’s preference for AI-enabling platforms.
Alphabet steps up in AI compute; Nvidia dominance challenged
Alphabet introduced its seventh-generation Tensor Processing Unit, dubbed “Ironwood,” which the company says delivers a fourfold speed boost versus prior versions. The move pushes deeper into Nvidia’s core franchise in AI accelerators, a market that has anchored 2024’s equity leadership.
For portfolio managers, the TPU vs. GPU narrative matters for margins, supply chains, and the availability of compute—key inputs for AI software adoption. Any incremental diversification away from scarce GPU supply could ease bottlenecks in model training and inference, with second-order benefits for cloud workloads and data-centric names.
Flows: Year-end rebalancing in focus for equities and FX
Traders are watching for traditional December dynamics—position squaring, performance chasing, and calendar-driven fund rebalancing—that can amplify price action in the final weeks of the year. With U.S. equities outperforming, some asset managers could hedge or trim U.S. exposure into month-end, a flow that FX desks often translate into potential USD selling against major peers.
Implied FX volatility remains subdued heading into the holidays, but liquidity typically thins late in the month, raising the risk of outsized moves on modest headlines.
Consumers: Black Friday strength meets BNPL credit scrutiny
- Black Friday online sales hit roughly $12 billion, while Buy Now Pay Later usage climbed 11% to an estimated $20 billion, signaling resilient holiday spending.
- FICO plans to incorporate BNPL activity into credit scoring, a shift that could tighten the link between short-term installment borrowing and broader credit access, especially if delinquencies rise in a softer growth patch.
Retail strength is a near-term support for risk sentiment; however, closer credit scrutiny of BNPL balances introduces a potential headwind for some consumer cohorts in 2025.
Housing check: aggressive price cuts signal bargaining power
Reports of record price reductions on roughly 30% of listings in Washington, D.C. highlight a market where sellers are capitulating to meet buyers. While localized, deeper discounts can foreshadow broader softening in transaction prices if mortgage rates and affordability remain restrictive.
Market snapshot
- Global equities advanced: S&P 500 +1.44%, Euro Stoxx 50 +1.87% early December.
- Alphabet unveiled its 7th-gen TPU “Ironwood,” with a claimed 4x speed uplift, stoking competition with Nvidia in AI compute.
- AI rotation in focus: traders favored Snowflake; Broadcom faced selective profit-taking.
- Holiday spending robust: Black Friday online sales around $12B; BNPL volumes up 11% to ~$20B.
- FICO to factor BNPL into credit scoring, a potential new constraint for leveraged consumers.
- Year-end rebalancing and thin liquidity could amplify FX and equity swings into month-end.
What to watch next
- Guidance and capex signals from AI leaders on compute supply, pricing, and cloud demand.
- Month-end equity and FX rebalancing flows amid low volatility and reduced liquidity.
- Consumer credit conditions as BNPL data begins to interact with traditional credit models.
- Real estate price discovery in high-cost metros as sellers adjust to affordability constraints.
FAQ
How does Alphabet’s new TPU affect Nvidia and AI-linked stocks?
Alphabet’s “Ironwood” TPU advances its in-house AI compute, potentially reducing dependency on Nvidia GPUs for certain workloads. While Nvidia remains the benchmark for high-performance accelerators, a more diversified supply landscape could support AI software adoption and lift data and cloud names. The competitive tone is broadly constructive for the AI ecosystem but may spur tactical rotations within semis.
Why are traders highlighting Snowflake over Broadcom?
Recent quant upgrades and price targets boosted interest in Snowflake as investors seek software and data infrastructure plays that monetize AI demand without direct exposure to chip-cycle volatility. By contrast, some managers used strength in semiconductor incumbents like Broadcom to rebalance or take profits into year-end.
What do Black Friday and BNPL trends mean for macro and FX?
Strong holiday spending supports risk appetite and earnings visibility, usually a positive for cyclical equities and pro-growth currencies. However, rising BNPL usage raises credit-quality questions; if repayment stress emerges, it could temper consumption in early 2025 and reintroduce safe-haven demand in FX.
Could year-end flows move the U.S. dollar?
Yes. Month-end rebalancing after U.S. equity outperformance can trigger USD selling by global investors hedging equity exposure. With lower liquidity late in December, even moderate flow signals can create outsized, short-lived FX moves.
What risks could derail the December rally?
A negative surprise in AI capex, a sudden tightening in consumer credit (including BNPL), or a liquidity vacuum into year-end could destabilize risk assets. Watch for guidance shifts from mega-cap tech and any deterioration in high-frequency spending data. For comprehensive coverage and real-time alerts, follow BPayNews.
