---
title: "[Mou Weekly] The Knife of Credit Cuts Those Who Don't Borrow (Week 42, 2026 | Issue #292)"
type: "Topics"
locale: "en"
url: "https://longbridge.com/en/topics/100000000942998.md"
description: "Last week, the Nasdaq 100 fell 5.5%, marking its worst week since the April 2025 tariff storm; the Philadelphia Semiconductor Index dropped for eight consecutive days, its longest streak since 2008; the VIX closed at 20.1 on Friday, standing above 20 for the first time since July 29. The knife started with a single bond. On Monday, it hit optical modules; Tuesday, memory chips; Wednesday, companies borrowing to build data centers; and Friday, software and cybersecurity firms. By close, every layer of the AI supply chain had been slashed. Yet among those getting cut, some hadn't borrowed a dime. In four days, from one bond to an entire industry chain: Monday, Oct 12..."
datetime: "2026-10-17T16:07:28.000Z"
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  - [zh-CN](https://longbridge.com/zh-CN/topics/100000000942998.md)
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author: "[谋定后动](https://longbridge.com/en/profiles/2064990920919875584.md)"
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---

# [Mou Weekly] The Knife of Credit Cuts Those Who Don't Borrow (Week 42, 2026 | Issue #292)

Last week, the Nasdaq 100 fell 5.5%, marking its worst week since the April 2025 tariff storm; the Philadelphia Semiconductor Index fell for eight consecutive days, its longest streak since 2008; on Friday, the VIX closed at 20.1, standing above 20 for the first time since July 29.

The knife started with a single bond. On Monday, it landed on optical modules; on Tuesday, on memory; on Wednesday, on companies borrowing to build data centers; and on Friday, on software and cybersecurity. By the close, not a single layer of the AI chain had escaped the blade. Yet among those cut down, some hadn't borrowed a dime.

**Four Days: From One Bond to an Entire Supply Chain**

Monday, October 12. Lumentum and Ciena each fell 10%, Coherent dropped 8%; none issued any announcements. The trigger was a comment from Broadcom and Intel CEOs the previous week: capital availability might slow the pace of AI infrastructure. Optical modules, the link furthest from "capital availability," were sold off first.

Tuesday, October 13. CXMT announced progress in its 4F² cell architecture, planning to launch server memory by year-end. SK Hynix fell 10%, Samsung dropped 7.4%, and Micron suffered its third consecutive day of losses. Equipment stocks followed suit, with Applied Materials falling 6.7% that day.

Wednesday, October 14. September CPI rose 3.7% YoY, core at 2.6%, with the 10-year Treasury yield spiking intraday to 5.33%. Later that day, Chamath posted a chart on X showing CoreWeave's bond yields hitting 15%, captioning it with the question: "Is AI construction creating a private credit bubble?" CoreWeave fell 15.5%, Oracle dropped 8.8%, Dell plunged 11%, and the Nasdaq fell 1.9%, its largest single-day drop since July 23.

Thursday, October 15. PPI rose 6.3% YoY, the highest since December 2022. CoreWeave's five-year CDS surged intraday to 1,195 basis points. South Korea's KOSPI fell 8%, hitting a six-month low, while Taiwan dropped 3%. TSMC released record quarterly results with Q4 guidance up 58% YoY, yet its stock fell 3%. The most anomalous move was in bonds: despite inflation data beating estimates for two consecutive days, the 10-year yield fell 13 bps to 5.06%. Money fled AI stocks and hid directly in Treasuries. Panic has reached such a level that even interest rates are being ignored.

Friday, October 16. The knife struck the final layer. Of 45 software stocks, 43 declined, wiping out $260 billion in market cap in a single day—$83 billion of that from Microsoft alone; Palantir entered a technical correction; the Cybersecurity ETF fell 10% for the week, its worst performance since March 2020. Brent crude touched $110, and the VIX jumped 22%.

Weekly tally: neocloud fell 23% to 34%, the three major AI server makers dropped 23% to 25%, optical modules fell 22% to 31%, semiconductor equipment fell 15% to 19%, memory fell 15% to 19%, consumer software fell 16% to 18%, and cybersecurity fell 11% to 18%.

Who was selling? Goldman Sachs Prime Brokerage data provided the answer: Long-short funds lost 2.9% this week, net-selling AI stocks for six consecutive trading days; on October 15, three major hedge fund strategies lost over 80 bps simultaneously—a scenario unseen from the pandemic through the end of 2025, now occurring for the third time in 2026; Asian funds lost 6.8% in the first half of October, erasing half of their gains since late June.

**Where the Knife Came From: A B+ Company's Ledger**

CoreWeave's business model is borrowing to buy GPUs, build data centers, and lease them to AI labs and cloud providers under long-term contracts. At the end of Q2, it carried $35.6 billion in debt plus $16.3 billion in lease liabilities, totaling $51.9 billion. Its five-year CDS stood at 368 bps on October 6, 643 on October 9, broke 1,000 on Wednesday, hit 1,195 intraday Thursday, and closed at 1,038; bonds maturing in 2031 yielded 15.78%, while 2032 issues traded at 77 cents. Assuming a 35% recovery rate, the market priced in over a 60% probability of default within five years. The company responded that 98% of revenue comes from irrevocable take-or-pay contracts, with backlog orders exceeding $100 billion, sufficient to cover all debt. What the market doubts isn't the contracts themselves, but whether the client signing them will still exist in five years.

**The reason this knife could slice the entire chain is that the entire chain is borrowing.** Google, Amazon, Meta, and Oracle issued $228 billion in bonds this year, more than double the full-year total of 2025; the IMF warned this week that hyperscale cloud vendors now account for 10% of global investment-grade bond issuance, up from less than 1% in 2024. Oracle is the closest to junk status among the four, rated BBB−, with CDS hitting a record 288 bps Thursday. Half of its $638 billion in deferred performance obligations come from OpenAI, and its CapEx for the next fiscal year is projected at $90–95 billion, leaving a free cash flow gap estimated by S&P at $42 billion. SoftBank's CDS reached 424. Even the CDS for Amazon, Google, Meta, and Nvidia hit record levels, albeit at much lower magnitudes.

**But clarity requires distinguishing between crisis confined to one layer and panic spreading across the whole chain.** Financing costs for AI companies fall into three tiers: AA-rated Meta, Google, Nvidia, and Amazon face short-end rates of 5% to 5.5%; BBB-rated Oracle and SpaceX see 10- to 12-year yields of 8% to 8.5%; B+ rated CoreWeave pays 15%. Only the third tier and the edges of the second tier actually got more expensive this week; the first tier didn't move a single basis point. Deutsche Bank's Jim Reid warns this fear could become a self-fulfilling prophecy, while Evercore's trading desk put it more bluntly: the market is saying no to "AI debt unsupported by operating cash flow."

**Panic Ignores Ratings; Ledgers Tell the Truth**

We ran a regression test on 60 AI-chain stocks: regressing weekly declines against YTD gains. The result: simply being on the AI chain cost you 12 points this week; for every additional 100% gain YTD, you lost another 3 points. Together, these factors explained less than 10% of the variance. The remaining 90% was determined by each company's position in the supply chain.

Position is defined by three questions: Who do you invoice? Do you need to raise capital from markets yourself? Is this week's bad news about your product?

The precision of the knife becomes clear from those who weren't cut. Texas Instruments, ADI, and Qualcomm fell only 2% to 3% for the week; Apple rose 2%. Inside software, the picture is even more telling: Salesforce, ServiceNow, and Adobe—the worst performers this year—actually gained 5%, 0.8%, and 1.2% respectively this week. Selling pressure came down by factor, targeting names that had rallied heavily early in the year, ignoring industry or valuation. This is the fingerprint of deleveraging, not a verdict on fundamentals.

**The Shovel Sellers Didn't Borrow**

Lam Research (LRCX) fell for nine consecutive trading days starting October 5, the first time since its 1984 listing, dropping 21.7% in nine days. Applied Materials (AMAT) saw an eight-day losing streak, its longest since 2018. KLA fell 15% for the week.

In the same week they were tumbling, their two largest downstream customers spoke up.

On October 14, ASML reported Q3 results: net sales of €11.66 billion (+25% QoQ), net income of €4.96 billion (+70% QoQ), and raised its full-year guidance for the third time this year. CEO Fouquet stated plainly that current plans cannot meet customer demand for both 2027 and 2028, with some clients already booking machines for 2029 and 2030. Despite this, ASML fell 7.8% that week.

On October 15, during TSMC's earnings call, the company reaffirmed CapEx of $60–64 billion for this year, noting that spending for 2026–2028 would be significantly higher than the prior three years. N2 capacity will more than double next year. CEO CC Wei said the gap between demand and supply remains "quite large," and CFO Su Rhong Chen highlighted "tight equipment supply." TSMC holds approximately $126 billion in cash on hand and owes no one money.

The same logic applies to memory. Samsung, SK Hynix, and Micomb plan combined CapEx of $146 billion for 2027, 3.4 times the 2024 level. SK Hynix CEO Koo Bon-hee noted that 2027 may see the tightest supply conditions in industry history. Memory accounts for 46% of Lam Research's system revenue.

Lam's own ledger: Q guidance calls for $8.1 billion in revenue (+52% YoY) with a 52% gross margin. Earnings drop on Wednesday, October 21 after the close—judgment arrives just four trading days later. Not a single broker downgraded the stock during the nine-day slide; Morgan Stanley actually raised its price target from $367 to $385.

**All customers are investment grade; customers just said equipment is insufficient; the company has cash on hand; no customer canceled orders. All four conditions met, yet the stock fell for nine straight days. This is the cleanest case of mispricing in this cycle.**

Three counterarguments are also worth noting: Applied Materials refused to provide WFE forecasts at SEMICON West on October 13, with part of that day's extra decline attributed to this silence; Citi warned that shortages in DRAM, capacitors, and optical components might slow installation pacing—this relates to delivery timing, not order volume; Lam's China revenue accounts for 26%, making export controls the sole structural risk in this group.

**The Same Knife, Different Wounds**

Let's run the same three questions over other victims.

Passed: TSMC delivered record earnings, fell 9% for the week, falsifying only one condition—customer cancellations—which management explicitly denied. SanDisk (SNDK), a NAND company dragged down by a single DRAM headline, fell 18% for the week; TrendForce predicts Q4 NAND contract prices will rise another 15–20%, with enterprise SSDs being the only category where growth is accelerating. Snowflake and Datadog saw product revenue grow 37% with acceleration for three consecutive quarters, overall revenue up 36%, and $4 billion in net cash, charging by usage—the phrase "AI financing" sits three layers away from their cash flows. Each has one caveat: Datadog disclosed its largest customer began reducing usage in Q3; Snowflake lowered its full-year gross margin guidance from 76% to 74% due to lower margins on AI workloads. Ciena revenue grew 37%, net debt under $400 million, fell 26% for the week with no specific company news.

Failed: Dell, HPE, and Super Micro fell 23% to 25%—cheap, but Barclays cited timing of enterprise AI spend and memory price hikes as downgrade reasons. Dell's AI server gross margin is only 18%, and its customer list includes neocloud and xAI—the credit knife lies squarely in their receivables. Coherent and AAOI: the former reported negative $1 billion FCF and $21 billion net debt last fiscal year; the latter just completed an equity offering on October 5, actively seeking capital markets. Palantir: its 55x P/S multiple retreated from an October 9 all-time high—this is valuation, unrelated to financing.

Half-passed: Cybersecurity. CrowdStrike and Palo Alto fell 17% to 18% for the week; there's no bad news on the demand side—Citi's CIO survey shows security budget growth rising to 7%, with 82% of CIOs stating AI investments are driving higher security spend. But the sector trades at a forward EV/Sales of 22x, compared to 10x six months ago. Business is mispriced; valuation is not. Micron and SK Hynix hold 18% and 50% HBM shares respectively, but traditional DRAM remains the bulk. CXMT is attacking precisely this segment. This isn't mispricing; pricing power is under review, judged by DRAMeXchange spot prices, not candlestick charts.

**My Approach**

I'm not trying to guess the bottom. The mispricing list isn't a buy signal for now—it's a shopping list for the day selling stops. Deleveraging cuts by factor, stopping only after the sell-off ends, ignoring valuation, so names on the list will likely continue falling until the selling concludes. I watch three signals: semiconductor volumes posting a bullish engulfing candle breaking the streak; CoreWeave CDS narrowing for two consecutive days; VIX returning below 18. If one appears, add one tier. Additions are restricted solely to the layer that passed all three questions; I won't touch neocloud by a share. Short puts in the account are handled per event-week rules; long shares and calls remain untouched, with Sell Calls added to all positions.

**Next Week: Watch Wednesday First**

Monday open focuses on SK Hynix and Samsung; Asia is the epicenter of this deleveraging wave. Wednesday after-hours brings Lam Research earnings—the first judgment on this thesis's core argument; Tesla reports the same day. CoreWeave and Oracle CDS remain the thermometer; whether Brent holds $110 determines if the underlying logic for a December rate hike has changed. The Fed enters a quiet period starting Saturday, with no officials stepping up to support the market. The following week, October 28 sees FOMC, Vertiv, and ServiceNow colliding on the same day.

**\[Next Week Outlook\]**

The credit knife cuts borrowers; the panic knife cuts everyone; ledgers determine who stands up first.

Last week's cards: Nasdaq 100 fell 5.5% for the week, CoreWeave CDS hit 1,195, hedge funds sold for six straight days, yet the 10-year yield returned to 5.08%.

Next week's table: Monday Asia, Wednesday Lam, before Friday watch CDS and oil prices.

Panic knows no rank; ledgers do.

Entry points aren't on the calendar; they're in the signals: on the day selling stops, buy first those who haven't borrowed.

Panic sells positions, not companies. Companies will speak for themselves next Wednesday.

## Comments (1)

- **HeyItsDaniel！ · 2026-10-19T03:37:44.000Z · 👍 1**: the names driving that streak report into it this week, lam and texas instruments on the 21st then western digital on the 22nd, so the tape gets tested against actual numbers


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> **Disclaimer: This article is for reference only and does not constitute any investment advice.**