Following the recent financial reports from Google and Tesla, the US stock market began to show significant divergence last night.
On one side, the tech blue chips, represented by the "seven giants of US stocks," collectively collapsed. Tesla plunged over 14%, Google dropped more than 7%, Amazon fell over 4%, and other companies like Apple, Microsoft, and Meta generally decreased by 1% to 3%. The market capitalization of these giants evaporated by hundreds of billions of dollars overnight, creating a scene of unprecedented severity.
On the other side, the storage chip sector seemed unaffected—SK Hynix, Micron, and SanDisk all saw their stocks rise, completely decoupled from the broader market. The same market, two entirely different worlds.
This does not resemble a healthy market, but rather looks like a market heading towards division.
1. The Culprit of the Plunge: "Sacrificing" Free Cash Flow
The direct trigger for this round of tech stock sell-off is a dangerous signal exposed during earnings season—free cash flow turning negative.
Tesla and Google are the two recent typical cases. Google's free cash flow recorded a negative $5.86 billion last quarter, a first negative quarter since its IPO in 2004; Tesla's financial situation also shocked the market. Both companies were previously synonymous with "money printing machines," but now have burned themselves into negative figures in the AI arms race.
The market's reaction to this was very direct: a sell-off.
It must be clarified that the market is not abandoning the AI narrative itself. Google’s cloud revenue exceeded expectations, and Tesla's FSD and Robotaxi outlooks are still recognized. What the market truly detests is that the AI narrative is being advanced at the cost of "sacrificing free cash flow."
For the past few decades, a hidden engine for the long bull market in US stocks has been stock buybacks. Giants like Apple, Google, and Microsoft spend money every year to buy back their stocks from the market, forming the most stable and consistent structural buying. Ultimately, the money for these buybacks comes from free cash flow. When free cash flow turns from positive to negative, it indicates that these once-largest buyers can no longer continue buying back, and may even be forced to finance by issuing new shares one day—from buyers to sellers.
This is a scenario the market does not want to see.
2. Why Can Chip Stocks Rise Against the Trend?
The reason is quite straightforward: chip stocks are on the other end of the money-burning funnel.
Every dollar of free cash flow burned by Google, Tesla, and Amazon has a substantial portion ultimately flowing to the upstream chip suppliers. Exceeding capital expenditure expectations is a signal for orders for chip stocks; the crazier the cloud companies are, the better business becomes for companies like Hynix. In simple terms, the giants are "sacrificing" themselves, but "feeding" the chip companies.
However, this arrangement is absolutely unhealthy. In a normal market ecosystem, the upstream and downstream of the industry chain should thrive together—not the upstream feeding on the downstream to maintain their glory. If the financial conditions of the cloud companies continue to worsen and shareholders pressure to cut capex, then the current high boom for chip stocks is destined to be temporary. The end of the feast may very well be the first announcement to cut capex.
3. VIX Soars, Oil Breaks $100: Alarms Are Sounding
More concerning than the plunge of the seven giants is that risk indicators are emitting systemic warnings.
The VIX volatility index soared about 12% in the past 24 hours, briefly breaking the psychological barrier of 20. This is the most direct evidence of a wavering market confidence. When the VIX rapidly breaks upwards from a low position, it usually means investors are starting to buy put options en masse to hedge against risks—concentrated "protective buying" pushes the volatility index higher. This is not a good sign.
Meanwhile, the commodity market is also signaling a resurgence of inflation:
Brent crude oil prices have surpassed $100 per barrel
WTI crude oil prices stand above $90 per barrel
This indicates a comprehensive rise in transportation costs, production costs, and manufacturing costs, suggesting that subsequent data for CPI and PPI may likely rise again, implying that the market expectation of the Fed "not raising interest rates this year" could face correction.
Negative free cash flow + soaring VIX + oil breaking $100, these three lines are converging into a macro environment extremely unfriendly to risk assets.
4. In Conclusion: Getting Good Insurance for Yourself is More Important Than Guessing the Direction
The current market landscape is highly fragmented. Chip stocks are dancing at high levels, the seven giants are scraping the floor, the VIX is giving warnings, and oil is igniting. No one knows how long this division will last—perhaps until the next Fed meeting, perhaps the next inflation report, or perhaps a policy shift after the midterm elections.
In an environment of extreme uncertainty about direction, options are precisely an excellent tool to solve this pain point.
BIT broker's options feature officially launched this week. Whether you hold chip stocks or blue chip positions in the seven giants, you can use options to manage risks during extreme volatility:
Holding stocks + buying put options: insuring high position holdings, even if a sudden crash occurs, losses are strictly locked in
Buying put options to short directly: not optimistic about the future performance of the seven giants? Use options to short at low cost, with maximum loss being only the premium
Buying both call and put options in both directions: when the market is divided to the extreme, it often means that significant volatility is about to arrive—betting on both sides, as long as the volatility is sufficient, profits can be made
Financing to go long, margin selling to go short, options insurance, three directions, one platform. In the face of turbulent markets, BIT can keep you buckled up.
Disclaimer: This article is written by a third party for reference only and does not constitute investment advice. Data is sourced from public channels and is not guaranteed to be absolutely accurate. Trading stocks and options carries a high degree of risk, options may lead to total loss of principal, and past performance does not represent future results. Mentioning the BIT platform is for objective introduction only and does not constitute a recommendation or endorsement.
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