Following Thursday’s downturn, markets are seeing a recovery. Bitcoin has risen by $5000, positively affecting sentiment in the tech sector, while the S&P 500 has increased by over 1%. However, Amazon faces a 9% drop due to a disappointing earnings report and its substantial capital expenditure plans.
Despite strong tech earnings, with 35 S&P 500 companies reporting an average sales growth of 16% and earnings growth of 24%, the benefits of AI investments remain uncertain. Tech giants like Meta and Google still derive most profits from advertising rather than AI. The return on invested capital is presently low for major AI investors, complicating prospects.
Changes in Tech Giants
The Magnificent 7 tech group is undergoing changes, with Apple gaining prominence alongside Nvidia, partly due to hyperscaler spending plans. Apple’s stock increased nearly 10% this week. Concerns persist regarding AI-linked stocks’ structural issues, potentially affecting their performance.
In commodities, silver’s recent selloff indicates market nervousness, whereas gold is seen as a safer option, with its price rising over 1% this week. Market focus has shifted to valuations, with geopolitical risks diminished as US-Iran talks begin. Risky assets like tech stocks and bitcoin are seeing reduced selling pressure, yet uncertainties remain ahead of the forthcoming January payrolls report release.
The nervousness we saw in 2025 regarding the return on AI investment is becoming a central theme again. Just as we questioned the massive capex pledges back then, the latest Q4 2025 earnings reports confirmed that spending continues to outpace clear monetization. With combined capital expenditures from the top five tech giants projected to surpass $200 billion in 2026, traders should consider protective put options on firms that are still struggling to translate these AI outlays into profit.
The leadership divergence within the market’s biggest tech stocks, a trend that began last year, has only accelerated. We saw Apple and Nvidia take the lead in 2025, and historical data shows that hardware and infrastructure providers consistently outperformed the big spenders in the second half of that year. This suggests that derivative traders could explore pair trades, such as going long on semiconductor ETFs and short on software giants who have yet to prove their AI models can generate significant new revenue streams.
Crypto and Sentiment Indicators
The link between crypto and tech stock sentiment, which we noted as a key support during the 2025 recovery, remains a valid, fast-moving indicator. Bitcoin recently saw a sharp 10% pullback from its highs near $85,000, and this corresponded with a dip in the Nasdaq 100 index. Watching these sharp moves in crypto can provide an early warning to hedge tech exposure, as it signals a rapid shift in speculative appetite.
We are also seeing a repeat of the safe-haven dynamics from last year, where gold asserts its dominance over more speculative precious metals. The gold-to-silver ratio, which we saw turn higher in 2025, has again climbed to over 90:1, its highest level in nearly two years, as traders seek stability. This indicates underlying anxiety and suggests that using options on gold miners or gold ETFs could be a more reliable hedge than those on silver.
Valuations are once again the main focus, and this is creating opportunities in the options market. The CBOE Volatility Index (VIX) has been persistently elevated above the 18-point mark, reflecting the market’s unease with high stock prices and uncertain returns. This environment is favorable for selling options premium on overvalued names that are not delivering on the AI hype, using strategies like covered calls or bear call spreads to generate income while defining risk.
