AI frenzy and tariff clouds coexist! As the "seven giants" of the US stock market surge, hedge positions increase sharply

According to the Zhitong Finance APP, since U.S. President Trump issued a comprehensive tariff decree on April 2 local time after returning to the White House, which triggered a significant plunge in U.S. stocks and even global markets, technology stocks led by the "Magnificent Seven" — the seven major tech giants including NVIDIA, Microsoft, and Tesla — have completely led the subsequent sharp rebound in the U.S. stock market. However, the latest bets from options traders indicate that once the 90-day "tariff easing period" announced by the Trump administration ends, the global trade war may escalate again, and these overvalued giants may be the first to bear the brunt.

Options traders believe that large tech giants are susceptible to volatility triggered by a new round of trade wars. Investors are generally concerned about the negative economic impacts of high valuations, tariff policies, and profit margin pressures from artificial intelligence spending, all of which could threaten the current upward momentum of large tech stocks. With less than a month until the end of the 90-day tariff "buffer period" set by the Trump administration, the Invesco QQQ Trust (QQQ.US), an ETF tracking the Nasdaq 100 index known as the "global tech stock barometer," has shown significant signs of rising hedging costs.

Statistics show that during last Friday's trading session, the implied volatility premium of put options for the ETF that protect against a "10% decline" rose to its highest level since early April, highlighting the market's heightened vigilance regarding the risk of a sharp correction in tech stocks.

Investors are generally worried that if trade frictions resurface and once again impact U.S. economic growth expectations, the stock prices of heavyweight companies in the tech sector (such as the Magnificent Seven) may replicate the leading decline seen in early April. During the severe turbulence in the global financial markets in early April, the declines of tech giants were much greater than that of the U.S. stock market benchmark — the S&P 500 index, and some investors believe this situation may occur again.

The upward expectation of the 10-year U.S. Treasury yield, known as the "anchor of global asset pricing," will also be a core negative driving force for the downward price of high-valuation stocks like tech stocks. The latest round of military confrontation between Israel and Iran indicates that, based on the historical conflicts between the two countries and the review of the geopolitical conflict situation in the Middle East, investors in the financial markets may face sustained selling pressure on 10-year U.S. Treasuries for some time. This also means that during the Israel-Iran conflict, the 10-year U.S. Treasury yield, known as the "anchor of global asset pricing," may trend upward, rather than entering a downward or crashing trajectory driven by the safe-haven rush that some investors expect.

The geopolitical developments between Israel and Iran further increase the long-term risks faced by U.S. Treasury investors, who are already contending with escalating concerns over overall inflation stickiness and the ongoing spiraling U.S. debt issue Since the escalation of tensions between Israel and Iran into direct military conflict last Friday, the benchmark for U.S. Treasury yields—the 10-year Treasury yield—has risen by more than 10 basis points. The main logic behind this is that the surge in international oil prices has further intensified inflation concerns, and the market continues to price in a significant expansion of the U.S. budget deficit and Treasury yields in the coming years.

Rocky Fishman, co-founder of market research firm Asym 500, pointed out in a report: "Geopolitics, high valuations, and the potential impact of tariffs on the economy remain concerns for the market."

Thanks to a strong earnings season and the ongoing explosive demand for AI computing power, the benchmark index measuring the overall performance of the "seven tech giants" has risen by 31% since April 8, when the Trump administration delayed aggressive reciprocal tariff policies, while the S&P 500 index has only increased by 20% during the same period.

For the "AI computing power supply chain" dominated by NVIDIA, Broadcom, AMD, and TSMC, even if the Trump administration launches a new round of aggressive tariffs globally, the outlook for AI computing power demand and the so-called "AI infrastructure investment logic" itself still possesses long-term investment return growth potential that remains "intact." A Bank of America survey shows that the cloud infrastructure AI software category ranks first in corporate AI budget expenditures, indicating that global AI computing power demand led by cloud giants such as Amazon, Microsoft, Alibaba, and Google continues to surge.

The expanded technology software ETF (IGV.US), which tracks the stock price trends of the world's top software companies related to AI, has risen over 30% since the end of April, significantly outperforming the S&P 500 index and the Nasdaq 100 index. AI GPU leader NVIDIA (NVDA.US) has surged over 50% since the low in April, while AI ASIC leader Broadcom (AVGO.US) has seen its stock price increase by over 60% during the same period, reaching an all-time high, making it the "strongest AI computing power infrastructure stock" this year.

However, in addition to concerns about trade wars and persistent inflation, there are worries that the long-term massive investments by these tech giants in AI computing power infrastructure will significantly pressure their profit margins, and the market has high hopes for the actual investment returns related to AI.

The so-called "seven tech giants" in the U.S. stock market—namely Apple, Microsoft, NVIDIA, Google's parent company Alphabet, Amazon, Facebook's parent company Meta Platforms, and Tesla—have been the core driving force behind the long-term bull market in the U.S. stock market since 2023. With their incredibly strong revenue driven by AI, solid fundamentals, consistently strong free cash flow reserves over the years, and expanding stock buyback programs, they have attracted a flood of global capital.

Valuation levels also remain high, with the forward price-to-earnings ratio of Bloomberg's "Magnificent Seven" index at about 29x, above the ten-year average of 28x; in comparison, the forward price-to-earnings ratio of the S&P 500 index is only about 22x Earlier this month, the analyst team from investment firm Needham downgraded Apple's stock rating to "Hold," citing that the valuation "appears expensive based on multiple metrics," and that Apple's fundamentals are particularly sensitive to changes in U.S. tariff policies.

Fishman stated that the significant rise in hedging demand in the stock market reflects investors' lack of confidence in the sustainability of this rally. "When the market rises in an atmosphere where investors are not excited, people start to worry about losing the investment gains they have already secured, leading them to buy protective hedging options."

Under the dual pressure of the global macroeconomic environment and valuations, the "fragile prosperity" of tech giants is becoming a new focus for bets in the options market. "As the market increasingly doubts these 'reluctant rebounds,' people won't feel too excited; they just see the market continuing to rise, and then you start to see more and more investors feeling anxious about giving up the investment gains they have already achieved," Fishman said