Thursday’s market reversal in after strong earnings was less about AI valuations and more about leverage. Two debt buildups, one in markets and one among households, are now colliding, and investors are beginning to price that in.
On the surface, the numbers looked strong. reported $57.01 billion in third-quarter revenue and guided it to $65 billion next quarter. The stock opened 5% higher. Within hours the gains vanished: the Nasdaq dropped 2.38%, the lost 1.56%, and the jumped 11.7% to its highest level since April.
Most commentary focused on profit-taking. Underneath, the data on consumer spending and market leverage point to a more basic problem: consumption, which makes up about 69% of U.S. , is weakening just as Wall Street has loaded up on debt to fund the AI trade.
Wall Street’s Leverage Problem
Margin debt, the money investors borrow to buy stocks, reached $1.18 trillion in October 2025, up $58 billion in a single month. Since April, margin debt has risen 39%, the fastest five-month increase since October 2021. That earlier surge was followed by a 25% decline in the S&P 500 over the next year.
That kind of build-up can unwind quickly. When a stock like Nvidia reverses intraday, margin calls start to hit. Investors who borrowed at $140 can be forced to sell at $130. Brokers sell positions to cover losses, and systematic strategies can magnify the move. A strong earnings report can still end with a day dominated by forced selling.
Even so, margin debt on its own is unlikely to break a market that is still posting $57 billion quarters. What makes this episode different is that the leverage on Wall Street is meeting a weaker, more indebted consumer on Main Street.
Main Street’s Breaking Point
The University of Index fell to 50.3 in November, the lowest reading since June 2022 and nearly 30% below a year ago. The current conditions index is at a record low. Around 71% of households now expect unemployment to rise over the next year, more than double the share a year earlier.
At the same time, U.S. credit card debt reached $1.233 trillion in the third quarter of 2025, the highest figure since the New York Fed began tracking in 1999. The average household carries $9,326 in credit card balances at an interest rate of about 22.25% a year, compared with a typical 13% to 16% range before the Fed started raising rates.
Delinquencies are rising across the income spectrum. In the poorest 10% of ZIP codes, the 90-day credit card delinquency rate climbed to 22.8% in early 2025 from 14.9% in late 2022. Even in the wealthiest 10%, serious delinquencies have increased by more than 70% over the same period.
The Phantom Debt Nobody’s Measuring
Official credit statistics still miss a growing slice of household borrowing: “buy-now-pay-later” plans.
Recent surveys show that 42% of BNPL users made at least one late payment in 2025, up from 39% in 2024 and 34% in 2023. Many of these loans are not reported to credit bureaus. A consumer can hold several BNPL plans across providers such as Klarna, Affirm, and Afterpay without traditional lenders seeing the full picture.
Roughly 61% of BNPL borrowers fall into subprime or deep-subprime categories. That means this extra layer of debt is concentrated in households that are already under pressure from higher-rate credit card balances.
The inverse relationship between soaring Wall Street margin debt and collapsing Main Street consumer sentiment through November 2025. As investors borrowed record amounts to fuel AI stock purchases, consumer confidence plummeted to near-record lows, thus creating a systemic fragility where both systems depend on assumptions that are breaking simultaneously
The Holiday Warning
PwC’s 2025 Holiday Outlook survey shows consumers expect to spend $1,552 on average, down 5% from 2024, the steepest projected decline since the pandemic. Gift spending is expected to fall 11%.
Generation Z is pulling back the most, planning to cut holiday spending by 23%. A quarter of Gen Z respondents say their financial situation is worse than a year ago, up from 17% in the prior survey. That is an early warning sign for broader consumption.
Why This Threatens the AI Thesis
The current AI capex story assumes that data centers will stay busy and that demand for AI services will keep growing. That spending ultimately depends on consumers and small businesses that buy AI-enabled products and services.
If 71% of households expect higher unemployment, if credit defaults are rising, and if holiday spending plans are falling, then enterprise demand becomes more fragile. Projects can be delayed, budgets trimmed, and adoption slowed.
The hyperscalers supporting Nvidia’s growth are expected to spend more than $300 billion on capital expenditure in 2025, using about 70% of their combined cash flows. That bet only works if AI services generate solid returns. Early surveys suggest fewer than half of enterprise AI projects are profitable, and only a small share have scaled across entire organizations.
The Fed’s Dilemma
Normally, a softening consumer backdrop and rising delinquencies push the Federal Reserve toward . This time, the backdrop is more complicated. is around 3%, still above the 2% target, while year-ahead recently jumped to 4.7%. Market-implied odds of a December have fallen from about 98% a month ago to roughly 35%.
Minutes from the latest Fed meeting highlighted wide disagreements among policymakers. Some favor cuts to support employment, while others worry that moving too quickly would lock in higher inflation. Chair Jerome Powell is trying to hold that split together at a point when both households and markets are looking for relief.
As long as that debate remains unresolved, both sides of the leverage problem remain exposed. Consumers get little respite from credit card rates above 22%, and investors running large margin balances cannot assume the Fed will step in if markets stumble.
The Collision
Nvidia’s earnings did not suddenly become less impressive over the course of a single trading day. What changed was the way a highly leveraged market interpreted them.
On one side, Wall Street has taken on about $1.18 trillion of margin debt to chase AI and other growth stocks, with borrowing growing faster than underlying returns. On the other, households are carrying roughly $1.233 trillion in credit card balances at record rates, with sentiment near historic lows and delinquencies climbing. The Fed sits between them, wary of cutting too soon and wary of holding rates too high for too long.
Thursday’s move was more than a routine pullback. The jump in the VIX showed that volatility markets are starting to price how sensitive this setup is to small shocks, with no guarantee of quick help from policymakers.
The most important leverage problem sits on Main Street. Consumer spending drives corporate earnings, not the other way around. When the households that are meant to buy AI-powered products and services are already stretched, the revenue assumptions behind roughly $300 billion in annual tech capex start to look optimistic.
In that sense, Thursday’s session was a reminder that the AI trade rests on an economy where both investors and households are heavily exposed to debt, and where central bank support is no longer a given.