Why the Stock Market Just Crashed — Transcript

Full transcript

1. 0:00On Thursday, Nvidia lost more than four
2. 0:03hundred billion dollars in a single morning,
3. 0:05and it hadn't done anything wrong.
4. 0:07Nobody had.
5. 0:08No bank failed.
6. 0:09No law passed.
7. 0:11The economy looked fine.
8. 0:12The S&P five hundred still lost more than two trillion dollars by midmorning.
9. 0:17And the Nasdaq needed just six minutes to give back a rally that was one day old.
10. 0:23So why did the stock market just crash?
11. 0:25And was this the AI bubble popping?
12. 0:29Best day after a midterm since nineteen eighty-two!
13. 0:32Does this come with a receipt?
14. 0:33The short answer is an election, six hundred thousand chips stuck in Hong Kong,
15. 0:38and some very rich people locking in a very good year.
16. 0:42The long answer starts a month earlier, on the sixth of October, in Santa Clara,
17. 0:47California.
18. 0:50That day, Nvidia closed at the highest price it had ever had.
19. 0:54A month before, it was worth about five point four trillion dollars,
20. 0:58roughly eight cents of every dollar in the whole S&P five hundred.
21. 1:03If you own a plain index fund, the safe, boring kind everyone recommends,
22. 1:08you own a lot of Nvidia.
23. 1:10Add the rest of the Magnificent Seven, Apple, Microsoft, Amazon, Alphabet,
24. 1:15Meta and Tesla,
25. 1:16and about thirty-five dollars of every
26. 1:19hundred in that fund sits on seven companies.
27. 1:22I'm diversified.
28. 1:23Five hundred companies.
29. 1:25Seven of them are a third of the pie.
30. 1:28...That is a big slice.
31. 1:30Even at the dot-com peak, the market wasn't this lopsided.
32. 1:34And most of those giants are betting on the same thing.
33. 1:37That bet is expensive.
34. 1:39This year,
35. 1:40the four biggest cloud companies plan to spend over seven hundred billion dollars
36. 1:45building data centers.
37. 1:46Next year, more than a trillion.
38. 1:49The biggest line on that shopping list says Nvidia,
39. 1:52whose last quarter brought in ninety-six billion dollars,
40. 1:55more than double the year before.
41. 1:59By late October, investors were staring at four cracks.
42. 2:03Crack one: the money goes in a circle.
43. 2:06Nvidia invests in its own customers,
44. 2:08the AI labs and chip-rental firms that then buy Nvidia chips.
45. 2:12It owns a stake in CoreWeave, which rents those chips out,
46. 2:16and agreed to buy up to six point three billion dollars of the computing power
47. 2:21CoreWeave can't sell.
48. 2:22Nvidia's own finance chief knows how that sounds: "we know some will call this
49. 2:27circular financing."
50. 2:29Here's a few billion dollars.
51. 2:31Wow!
52. 2:32What should I spend it on?
53. 2:34Funny you should ask.
54. 2:35Crack two: the chips are the collateral.
55. 2:38Firms like CoreWeave borrowed huge sums to buy chips, rented them out,
56. 2:42and pledged those same chips to borrow more.
57. 2:45At one point CoreWeave owed over five dollars for every dollar of equity.
58. 2:50Fine, while a used chip holds its value.
59. 2:53But Nvidia brings out a new generation every year or two,
60. 2:56and each one makes the last one worth less.
61. 2:59And Michael Burry, who called the housing crash,
62. 3:02says the giants book their servers as lasting longer than they do,
63. 3:06which flatters profits.
64. 3:07The nightmare: one borrower misses one
65. 3:10payment, the lender grabs the chips to sell,
66. 3:12and everyone learns that afternoon what a used AI chip is worth in a hurry.
67. 3:17It hasn't happened.
68. 3:18But every chip investor has thought about it.
69. 3:21Crack three: who's paying.
70. 3:23By the end of July,
71. 3:24Nvidia was owed about sixty-three billion dollars for chips it had shipped but not
72. 3:29been paid for yet.
73. 3:30And this year, just three buyers made up more than two fifths of its sales.
74. 3:35Picture a restaurant where three tables order two of every five plates,
75. 3:40and a lot of the food goes on a tab.
76. 3:42Crack four: the plug.
77. 3:44You can buy a chip.
78. 3:45You can't buy electricity that doesn't exist.
79. 3:48In northern Virginia, the data-center capital of the world,
80. 3:51the wait to hook a new building up to the grid had stretched to about seven years.
81. 3:56And the power that does exist, somebody pays for.
82. 3:59On America's biggest grid, across thirteen states,
83. 4:03power plants get paid just to stand ready, and families cover that in their bills.
84. 4:08Then the data centers piled in.
85. 4:10Households there were paying an estimated twenty-five to thirty dollars a month more
86. 4:15than in twenty twenty-four, and the grid's own watchdog blamed data centers first.
87. 4:21Why is the electric bill up again?
88. 4:23Hi, neighbor!
89. 4:24Nobody reads a spending report.
90. 4:27Everybody reads their power bill.
91. 4:28Hold that thought.
92. 4:29Wall Street had its own bad news.
93. 4:32On October twenty-ninth, Google had its worst trading day ever.
94. 4:36The next day Intel fell by a quarter, chip stocks slid into a bear market,
95. 4:41and Apple, the boring one, passed Nvidia in value.
96. 4:44By the second of November,
97. 4:46the forty-seven biggest AI and chip stocks had lost about five trillion dollars
98. 4:51since the top.
99. 4:52That's about what the whole dot-com crash wiped out,
100. 4:55and that took two and a half years.
101. 4:57This took four weeks.
102. 4:59Then came the election.
103. 5:02Tuesday, the third of November.
104. 5:05Democrats won the House.
105. 5:07Then they won the Senate.
106. 5:08Further down the ballot, in ten states,
107. 5:10there were forty-one local votes on data centers.
108. 5:14Voters went against them in forty.
109. 5:16Twenty-one of those were in Ohio.
110. 5:18The one town that said yes was Harwood, North Dakota.
111. 5:21Ohio, no.
112. 5:23Ohio, no.
113. 5:25Ohio, no.
114. 5:26Ohio...
115. 5:27Hi!
116. 5:28Yes!
117. 5:29Over here!
118. 5:30That's the power bill, showing up at the ballot box.
119. 5:32In Ohio, Sherrod Brown beat Jon Husted,
120. 5:36who'd been called "the face of data centers." In Texas, Elon Musk,
121. 5:40the cycle's biggest donor with at least four hundred and seventy-four million
122. 5:44dollars, lost both big races.
123. 5:47His reaction:
124. 5:48Data centers in space looking pretty appealing right now.
125. 5:52Here's why a town vote moves Wall Street.
126. 5:54A data center needs land, power and a permit, and all three are local.
127. 6:00Goldman Sachs figured moratoriums like
128. 6:02these could hit about forty-five percent of
129. 6:05America's planned data-center expansion.
130. 6:07And the bigger fear was Washington.
131. 6:09For years, AI was mostly left alone to build.
132. 6:13Now a Democratic Congress, elected the same night voters said no to data centers,
133. 6:18might want rules on where data centers go, who pays for their power,
134. 6:22and how fast the build-out runs.
135. 6:24One congressman, Robert Garcia, had two words for AI executives: "Lawyer up."
136. 6:32So.
137. 6:33Data centers.
138. 6:35We were just leaving.
139. 6:36No rule has passed.
140. 6:38Not one.
141. 6:39It was the fear of a rule that did the selling.
142. 6:41That trillion-dollar shopping list had picked up some small print: if they let us
143. 6:46build it.
144. 6:49And on Wednesday, Wall Street partied anyway.
145. 6:52The Dow jumped fifteen hundred and sixty-nine points, about three percent,
146. 6:56its best day after a midterm since nineteen eighty-two,
147. 7:00and oil fell more than nine percent.
148. 7:02Traders loved the cheap oil.
149. 7:04They hadn't gotten to the new Congress yet.
150. 7:06The party lasted one day.
151. 7:08That morning, Vice President JD Vance had posted on X.
152. 7:13The reason we lost is the war.
153. 7:15The war with Iran.
154. 7:17That raised hopes of a deal, and oil fell.
155. 7:20By Thursday morning, traders doubted it, and oil climbed again.
156. 7:24Then, before the opening bell, Reuters dropped the next problem.
157. 7:28About six hundred thousand of Nvidia's H200 chips were sitting in Hong Kong,
158. 7:33waiting for Beijing to let them in.
159. 7:35Washington had cleared the sales last winter, case by case,
160. 7:39with a twenty-five percent tariff.
161. 7:41In August, Beijing let companies use them in Hong Kong.
162. 7:44Into mainland China, in bulk?
163. 7:46Still waiting.
164. 7:47You said we can sell them!
165. 7:50You can.
166. 7:50Twenty-five percent, please.
167. 7:52They're in Hong Kong!
168. 7:53Can they come in?
169. 7:56Not yet.
170. 7:57The strange part: Nvidia had already taken a four hundred million dollar hit on
171. 8:02H200s that nobody bought.
172. 8:04And the ones that did have buyers couldn't get through the door.
173. 8:09Nine thirty.
174. 8:10The bell rings in New York.
175. 8:12It takes the Nasdaq six minutes to give back the whole rally.
176. 8:16So much for Wednesday.
177. 8:17Ten thirty-five.
178. 8:18The Nasdaq is down four percent and the Dow seven hundred points.
179. 8:23Across the S&P five hundred, more than two trillion dollars has vanished,
180. 8:27and more than four hundred billion of it is Nvidia alone.
181. 8:31That's about twice Amazon's entire building budget for the year.
182. 8:35Eleven seventeen.
183. 8:36The VIX, Wall Street's fear gauge, is up sixty-five percent.
184. 8:41Think of it as the price of crash insurance, and everybody wants some.
185. 8:45Eleven thirty-seven.
186. 8:46The Dow is on track for its worst second day after a midterm in records going back
187. 8:52to eighteen ninety-six.
188. 8:53One thirty-eight.
189. 8:55AMD's boss, Lisa Su, speaks up, with her stock down fifteen percent.
190. 9:00I think the market can sometimes be a little bit short-sighted.
191. 9:05Aaaaah!
192. 9:06Two fifty-eight.
193. 9:07And this is where ordinary people come in.
194. 9:10Maybe you're at work, checking your phone under the desk.
195. 9:13You own a plain S&P five hundred fund.
196. 9:15If it holds a quarter of a million dollars,
197. 9:18Nvidia alone took about nine hundred and ninety dollars out of it that morning.
198. 9:23By now, small investors have sold, on net,
199. 9:26three hundred and fifty-eight million dollars of stock,
200. 9:29the most since March twenty twenty.
201. 9:31Buy the dip...
202. 9:34...or sell the dip?
203. 9:35Viraj Patel at Vanda Research called it "a total capitulation by retail investors,"
204. 9:41with "no signs of buying the dip."
205. 9:44Three oh six.
206. 9:45Charlie McElligott, a strategist at Nomura, explains who's really selling.
207. 9:50They're shooting the generals.
208. 9:52The generals are the year's biggest winners.
209. 9:54Hedge funds had made a fortune in twenty twenty-six, and with two months to go,
210. 9:59they sold the winners to lock it in.
211. 10:01Computer-driven funds and funds on borrowed money were forced to sell too.
212. 10:05And nobody stepped in to buy.
213. 10:07Great year.
214. 10:08Let's bank it.
215. 10:09Sell the winners.
216. 10:11Which ones?
217. 10:13Yes.
218. 10:13Single-name stock moves are absolutely BONKERS.
219. 10:17Four o'clock.
220. 10:18The closing bell.
221. 10:19The Dow lost eighteen hundred and thirty-three points.
222. 10:23The S&P fell over four percent.
223. 10:25The Nasdaq fell five and a half, its biggest drop in nineteen months,
224. 10:30and is now in a correction, at least ten percent below its high.
225. 10:34Chip stocks had their worst day since March twenty twenty.
226. 10:37Nvidia closed at a hundred and eighty-one dollars, down more than nine percent.
227. 10:42And while everything burned, AppLovin rose almost thirty percent,
228. 10:46and Goldman Sachs picked that day to name a hundred and nine new partners,
229. 10:51its biggest class since twenty ten.
230. 10:55Honestly?
231. 10:56Great day to get promoted.
232. 10:59It's easy to think a crash like this only hurts rich people.
233. 11:03It doesn't.
234. 11:04Around seventy million Americans save in a 401(k),
235. 11:08mostly through the same index funds,
236. 11:09and the pensions of teachers and firefighters hold them too.
237. 11:13When the seven giants fall, they fall too.
238. 11:15It goes deeper than stocks.
239. 11:17Data centers run on borrowed money,
240. 11:20much of it raised from insurers and pension funds.
241. 11:22Pimco bought a big piece of the bonds for Meta's giant Louisiana data center with
242. 11:27savers' money, and Washington has moved to open 401(k)s to this kind of lending.
243. 11:32So your retirement may be quietly lending to a half-built building.
244. 11:37And some get hit without owning a share: the electricians,
245. 11:40some making two hundred and sixty thousand dollars a year on data-center jobs,
246. 11:45and the diners that feed them.
247. 11:47Thursday didn't stop that work.
248. 11:49But if the spending stops, it lands there first.
249. 11:52If you're twenty-five, Thursday was a sale.
250. 11:55If you're sixty-two and retiring in the spring, it was a very long day.
251. 12:02So who do you get angry at?
252. 12:04Every crash wants a villain.
253. 12:06Twenty oh eight had the banks.
254. 12:07Thursday doesn't really have one.
255. 12:10I just didn't want the bill.
256. 12:12I just wanted to keep my good year.
257. 12:14I just said not yet.
258. 12:16I just sold chips!
259. 12:18Every one of those choices made sense on its own.
260. 12:21They just all landed on the same morning.
261. 12:23So here's why the stock market crashed.
262. 12:26A market that's one-third AI had been sliding for a month.
263. 12:30Then, in three days, voters elected a Congress that might rein in data centers,
264. 12:35Beijing left six hundred thousand chips at the door,
265. 12:38and funds sitting on a great year cashed out.
266. 12:41Nothing broke.
267. 12:42The fear did it.
268. 12:43It isn't new, either.
269. 12:45In the eighteen-forties, Britain went mad for railways,
270. 12:49and at the peak it was pouring about seven percent of its economy into track.
271. 12:53Railway shares lost nearly two thirds of their value,
272. 12:56and a third or more of the approved lines never got built.
273. 13:00But many of the lines that did get built are still part of Britain's railway today.
274. 13:04Here's the catch.
275. 13:05A railway can wait for its trains.
276. 13:08A chip sitting in a dark building just gets older.
277. 13:11So, was Thursday the AI bubble popping?
278. 13:14Not yet.
279. 13:15Both tariff-crash days in April twenty twenty-five were bigger,
280. 13:19and together erased a record six point six trillion dollars.
281. 13:24Jobless claims were near their lowest since nineteen sixty-nine.
282. 13:27And no rule had passed.
283. 13:29Bernie Sanders called for a national moratorium on data centers.
284. 13:33Americans don't want Big Tech oligarchs wrecking the environment...
285. 13:38A call, not a bill.
286. 13:39A bubble doesn't pop when prices fall.
287. 13:42It pops when the money stops.
288. 13:44On Thursday, the money hadn't stopped.
289. 13:47Nvidia's sales were still doubling.
290. 13:49The giants were still expected to spend more than a trillion dollars next year.
291. 13:53But here's the part almost nobody noticed.
292. 13:56A week before the crash, one giant blinked.
293. 14:00Microsoft cut its spending plan from a
294. 14:02hundred and seventy-five billion dollars to a
295. 14:04hundred and seventy.
296. 14:06That's less than three percent.
297. 14:07Tiny.
298. 14:08But it's a foot moving toward the brake.
299. 14:11And on Tuesday,
300. 14:12the people who pay the electric bill
301. 14:13elected a Congress that might want a say in
302. 14:16where the buildings go.
303. 14:17So Thursday wasn't the pop.
304. 14:19It was the day the market noticed there's a pin, and that voters,
305. 14:23Washington and Beijing all have a hand on it.
306. 14:26Nvidia is now about a quarter below its October record.
307. 14:30Its next report is due on the seventeenth of November,
308. 14:33and the six hundred thousand chips are still in Hong Kong.
309. 14:36The rally died in six minutes.
310. 14:39What happens next gets decided much more slowly, by permits, power lines,
311. 14:44and an electric bill on a kitchen table in Ohio.
312. 14:47On Thursday, Lisa Su said the market can be a little bit short-sighted.
313. 14:52That afternoon, it might have been the furthest it had looked in months.