• Citi has paused its S&P 500 long trade, citing fading AI optimism after Nvidia's post-earnings reversal
  • The S&P 500 is down approximately 4% in November, on track for its worst month since March
  • While not declaring the AI bubble has peaked, Citi sees weaker risk-reward as strong Nvidia results failed to reignite market momentum

Citi has taken a tactical pause on its S&P 500 long position, according to people familiar with the matter, as growing doubts emerge about the sustainability of the artificial intelligence-driven market rally. The decision comes after Nvidia's surprising stock reversal last week, where initial post-earnings gains evaporated into a 3% decline, dragging broader indices lower.

"We do not see conclusive evidence that the AI bubble has peaked, but tactically, the risk-reward is weaker than expected since a strong quarter from Nvidia failed to reignite animal spirits," said Dirk Willer, Citi's global head of macro strategy, in a client note reviewed by this publication. The bank has stopped out of its S&P 500 tactical long and plans to take profits on Nasdaq 100 and S&P 500 Equal Weight Index trades.

The S&P 500's approximately 4% November decline marks a sharp reversal from its six-month winning streak and represents the index's largest monthly drop since March. Market participants point to the Nvidia episode as particularly concerning, given the chipmaker's central role in the AI investment thesis and its status as a bellwether for technology sentiment.

Citi's move reflects growing institutional caution about crowded positioning in AI-related names, even as fundamental business results remain strong. The bank specifically highlighted SoftBank as another potential canary in the coal mine for AI ecosystem vulnerability, given its significant exposure to OpenAI and other artificial intelligence ventures.

Trading desks reported elevated volumes in technology ETFs and single-name options throughout the week as investors repositioned around the AI theme. One senior trader at a major investment bank, who asked not to be named discussing client activity, noted that "the momentum crowd is getting nervous, but the fundamental buyers are still there waiting for better entry points."

Citi's analysis suggests the current market environment is "rare" given that November and December typically show strength following solid year-to-date returns. The bank attributes the weakness to a combination of fading AI optimism and renewed uncertainty around the Federal Reserve's interest rate path.

While taking a tactical pause, Citi maintains that AI represents a structural transformation for productivity and business growth over the longer term. The current caution appears focused on near-term positioning rather than a fundamental reassessment of the technology's potential.

Representatives for Citi declined to comment beyond the published research note. Nvidia did not immediately respond to requests for comment about the market reaction to its earnings report.

Correction: An earlier version of this article misstated the timing of Citi's position change. The decision was made following Nvidia's earnings release last week.