The Overnight Report: AI’s Twists And Turns

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This story features MACQUARIE GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: MQG
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

US markets recovered off intraday lows with Nasdaq falling the most as investors responded negatively to Nvidia's results and sold off hyperscalers.

After setting another record high on Thursday, ASX200 futures are pointing to a slightly positive start for the last day of reporting season, thankfully for the 'weary' team at FNArena.

Good Morning,

The Australian market reached for record highs on Thursday, boosted by a rebound in technology shares.

The ASX200 index rose 47 points or 0.5% to 9,175. Tech rose 5.2%, energy lagged by -1.5%.

Today’s the final day of the official February results season in Australia.

Among today’s reporters, Coles Group’s ((COL)) otherwise strong result has been impacted by significant items relating to historical staff underpayments. TPG Telecom ((TPG)) is back in the black. Block ((XYZ)) is now ‘rule of 40’ compliant, but the company is also following the example of WiseTech Global and sharply reducing its workforce.

Bubs Australia ((BUB)) has upped FY26 guidance. Pexa ((PXA)) has trimmed its guidance. Virgin Australia ((VGN)) has reported a loss because the resurrected airline must pay tax. There’s more, lots more to digest today.

The numbers are accumulating rapidly inside the FNArena Corporate Results Monitor:

https://fnarena.com/index.php/reporting_season/

What happened overnight, NAB Markets Today extract

After two-days of gains, US stocks moved lower with tech once again in the driving seat after Nvidia failed to impress despite a very strong set of results.

The shares sold off while investors rotated into beaten down software names. Nasdaq fell -1.18% led by a sell off in Nvidia and the hyperscalers and the S&P500 fell -0.54% with the Dow Jones turning positive with strength in financials. 

The Euro Stoxx600 closed -0.19%

The third round of talks between the US and Iran were held in Geneva, with US Special Envoy Steve Witkoff and Donald Trump’s son-in-law Jared Kushner attending alongside Iran Foreign Minister Abbas Araghchi.

Early optimism and increased oil exports by Saudi Arabia, which is seeking to get ahead of any US-Iran military confrontation with increased tanker loading, saw oil prices initially decline. Optimism faded as Iran described the talks as ‘very intense and serious.’

US demands Iran destroy its three main nuclear facilities and deliver remaining enriched uranium to the US were rebutted by Iran who also said they would not agree to any permanent suspension of enrichment.

Talks were suspended before restarting. While Axios reports Kushner and Witkoff are disappointed by the morning talks, neutral mediator Oman says talks between the two sides will continue at a technical level next week. 

That headline has seen a modest recovery of the worst stock losses, a slight pullback in the USD and oil. Recent media suggestions of a stalemate between the two sides, with Iran apparently not responding to the huge US military buildup, remains a key concern.

The broader risk-off sentiment supported bonds, with US 2-year Treasury yields up 2.6bps at 3.44%, US 10 year yields -3.4bps at 4.02%. German bonds outperformed, losing -3 and -4bps respectively, with a softer EU Commission Economic Confidence survey adding to yield declines.

EU Economic Confidence in February eased to 98.3 from 99.3, a three-year high. Confidence in Services and Construction was also lower, while Consumer Confidence was stable.

In the UK Gilt yields also eased with 2-year yields -3bps and 10-year yields -4.5bps. Gilt yields had led the move initially, with assistance from speculation UK Gilt issuance will be suitably lower for the FY 2026-27 as a result of higher taxation and lower borrowing costs.

A local by-election near Manchester today is expected to make bleak reading for the government and could weigh on GBP, if political instability rises again.

In FX markets, GBP/USD was 0.7% at 1.3455. The USD was broadly stronger, a move that built later in the day amid the US-Iran talks.

The USD DXY rose 0.35% to 97.95, before easing back as the Oman headlines came in just before we went to press. The AUD fell -0.5% to 0.7080, NZD -0.55% to 0.5965. EUR/USD fell -0.3% to 1.1778. All three recovered a little as the USD eased off highs.

In Australia Q4 capex rose 0.4% q/q, above a 0% consensus. Buildings and Structures (2.3% q/q) more than offset a fall back in Machinery, Plant and Equipment (-1.7% q/q). Investment partials this week are marginally softer than expected, but we continue to look for a 0.6% q/q GDP outcome (due 4 March) at this stage. We will firm up our GDP forecast in the What to Watch publication Friday.

There was no market reaction to the ANZ business outlook survey which continued to exhibit high levels of confidence in the NZ economy and own activity, combined with an inflationary pulse inconsistent with the RBNZ’s 2% inflation target. 

Year-ahead inflation expectations continued to trend higher, rising to 2.93%, while a net 79% of firms expect higher costs in the next three months and a net 53% expect to raise prices. 

Later today, the ANZ consumer confidence survey for February will be released. In January confidence hit an over four-year high of 107.

AI Honeymoon over as Nvidia’s US$78bn outlook fails to impress, Nigel Green, deVere Group extract

Nvidia’s US$78bn revenue outlook is failing to ignite investors as they underscore that AI investors are increasingly demanding scrutiny and profitability, not priced-in promise. 

The market reaction to Nvidia’s forecast is more revealing than the numbers themselves. A US$78bn revenue outlook would once have triggered a surge. Instead, the stock slipped before clawing back marginal gains in post market trading.

For the remainder of this year at least, this sets the tone: exceptional growth is expected, not rewarded. Investors are no longer going to buy exposure to AI at any price and are demanding evidence of sustained profitability, operating discipline, and visibility on returns.

Revenue growth alone is insufficient when expectations are already stretched.

This matters for Nvidia in very practical terms. The company remains the backbone of AI infrastructure. Demand from hyperscalers, enterprise customers, and sovereign-backed digital initiatives continues to drive extraordinary scale. Yet the valuation premium now assumes near-flawless execution.

For the rest of 2026, the burden shifts toward defending margins, demonstrating pricing power, and maintaining order visibility despite intensifying competition and in-house chip development by major cloud operators.

Markets will scrutinise gross margin trends, capex dependency from hyperscale clients, and the durability of supply constraints that have supported pricing strength. Any signal that AI-related capital expenditure is plateauing, or that competitive alternatives are gaining traction, will likely provoke outsized reactions.

Premium multiples demand premium predictability. Nvidia has delivered extraordinary performance and now it must deliver consistency at scale. That’s a far higher bar.

The implications extend across the AI ecosystem. Semiconductor peers, advanced memory producers, data centre infrastructure providers, and AI-focused software firms have traded in sympathy with Nvidia’s ascent.

A more selective market will begin distinguishing between companies with demonstrable earnings conversion and those relying primarily on narrative momentum.

For the remainder of the year, dispersion within AI equities is likely to widen. Infrastructure leaders with clear cash flow generation may hold their ground.

Application-layer businesses that have yet to prove monetisation could face sharper volatility. Markets are transitioning from thematic allocation to forensic analysis, and investors demanding scrutiny are reshaping capital allocation strategies.

Institutional portfolios that aggressively overweighted AI leaders during the initial surge are increasingly stress-testing assumptions: What is the sustainable growth rate beyond peak deployment cycles? How exposed are revenues to a handful of hyperscale buyers? What happens if capex growth moderates into 2027?

Investors want line-of-sight on earnings durability and balance sheet strength. They’re evaluating AI companies as mature cash-generating enterprises, not early-stage disruptors.

For Nvidia, this environment could ultimately reinforce its position if it continues to execute. Strong free cash flow, continued innovation cycles, and strategic ecosystem entrenchment may justify its premium.

Volatility around earnings releases is likely to intensify because the margin for surprise has narrowed considerably.

For the broader AI complex, the message is unequivocal: narrative acceleration must now be matched by financial precision.

Companies unable to translate AI adoption into expanding operating margins may see valuation compression, even if top-line growth remains impressive.

The AI revolution is intact as Nvidia’s US$78bn outlook shows. However, the muted reaction shows markets feel AI must now prove margins, not only momentum.

The second half of the year in the AI sector will reward discipline, transparency, and profitability.

Private Credit’s Day of Reckoning, Stephen Inness, SPI Asset Management extract

Private credit has been marketed as the adult in the room. Steady yield. Low volatility. No daily price swings. No flashing red screens.

Just income dripping into portfolios while public markets throw tantrums.

But here is the uncomfortable truth.

Private credit did not remove risk. It removed visible pricing.

When you do not mark assets every day, you do not eliminate volatility. You postpone it.

Now we are approaching the point where postponement meets physics.

Let’s start with leverage, because leverage is gravity.

Many private credit deals were structured at 7.5-8 times debt-to-EBITDA (which is high leverage, high risk).

Translation.

If a company generates 100 in operating cash flow, it may carry 750 to 800 in debt. That means it would take 7 to 8 years of current earnings to repay that debt, assuming nothing goes wrong.

Now imagine earnings fall -25% because AI compresses margins, replaces services, or forces pricing resets.

That 8x leverage instantly becomes 10x or worse relative to the new earnings level.

Interest does not fall just because earnings do.

So what happens?

Interest coverage shrinks.
Refinancing becomes harder.
Creditors get nervous.
Defaults rise.

Private Credit Default Rates Could hit 15%, UBS warns.

(https://www.bloomberg.com/news/videos/2026-02-25/private-credit-default-rates-could-hit-15-ubs-warns-video?utm_source=substack&utm_medium=email)

That is why math becomes merciless.

High leverage is like thin ice. It holds beautifully until it doesn’t. And when earnings crack, the weight multiplies instantly.

This is not a traditional recession story.

In most credit cycles, demand weakens, GDP slows, and defaults drift higher.

This time, the risk is structural. AI is not cyclical. It is disruptive. It is rewriting cost structures and competitive landscapes across software and tech-enabled services, which just happen to represent a significant slice of private credit portfolios.

Concentration is the accelerant.

History shows that one sector can drive the entire default cycle. Telecom did it in 2001. Energy did it in 2016. When a single industry accounts for the majority of stress, aggregate default rates can jump far faster than models predict.

Private credit today is heavily tilted toward services, technology, and healthcare. If software models reset, the impact will not be evenly distributed. It will cluster.

Clustering is how credit cycles go nonlinear.

Current default rates are hovering around 3% to 5%. That is not a crisis. That is elevated but digestible.

The concern is what happens if defaults move toward the mid-teens.

At that level, losses stop being portfolio noise and start becoming capital events.

And this is where the interconnection matters.

Private credit does not live in isolation. Borrowers often tap both private lenders and syndicated loan markets. The same sponsors recycle the same names across structures.

The largest direct lenders also hold positions in leveraged loans and high-yield bonds.

So if private credit stress rises, it does not stay in a sealed compartment. Spreads widen in public markets. Liquidity thins. Risk premia reprice across the stack.

Then there are the balance sheets behind the curtain.

Banks and insurers have significant exposure to non-bank financial institutions. They lend to private credit vehicles. They provide undrawn commitments. They structure products around them.

In good times, that is diversification. In stress, there is a correlation.

If enough borrowers stumble at once, it becomes less about individual deals and more about system-level absorption capacity.

Now layer in the early warning signs.

PIK means the borrower is not paying cash interest. Instead, they add that interest to the loan balance. They are borrowing more to pay what they already owe.

That buys time. It does not solve the problem. It increases leverage further and shifts risk forward.

Interest coverage in many middle market deals sits around 1.7 to 1.8 times. That means earnings only cover interest less than twice over.

If earnings fall even modestly, that cushion evaporates.

At the same time, issuance could contract sharply in a stress scenario. If new credit supply drops and refinancing windows narrow, highly leveraged companies cannot simply roll their debt forward.

That is when defaults accelerate.

Opacity is the final multiplier.

Public bonds trade daily. Pain is visible in real time.

Private loans are marked periodically, often using internal models. That means deterioration can build quietly. When valuations finally adjust, it is rarely gradual. It is sudden.

The illusion of smooth returns disappears quickly when marks move.

None of this means we are in a crisis today.

It means the ingredients are assembled.

High leverage.
Sector concentration.
Structural disruption.
Interconnected lenders.
Limited transparency.

Private credit was built in a world of zero rates and endless liquidity. It is now operating in a world of higher rates and technological upheaval.

That is a different equation.

The key point is simple.

When leverage is high and earnings are vulnerable, small changes create outsized consequences.

The surface still looks calm. The coupons are still being paid. The narrative still says contained.

But beneath that calm water, pressure is building along the seams.

And when highly leveraged structures meet structural earnings resets, the market does not negotiate with arithmetic.

It reprices it.

Corporate news in Australia

-Macquarie Asset Management’s ((MQG)) is preparing a bid for 50% of SERV, the Secure Electronics Registries Victoria ($4bn)

-Bapcor ((BAP)) is raising $200m at a -65% discount to the last share price at 60c per share

-GLP-1 adoption is growing Chemist Warehouse’s ((SIG)) total addressable market

-Elders ((ELD)) to sell Killara Feedlot to Australian Meat Group for $196m with negligible EPS impact

-Future Group buys Tower Watson trustee business, moving in-house and affecting EQT Holdings ((EQT))

-US bidders are likely to overlook the AUD strength in 2026 M&A deals according to Ashurst

-Coles Group ((COL)) rejects claims its “Down Down” campaign misled shoppers on prices

-DroneShield ((DRO)) signs $22m contract deal with a western military customer

-CommBank ((CBA)) flags -$1bn potentially fraudulent home loans, including AI-made documents

On the calendar today:

-AU Jan Private Sector Credit

-EZ Consumer Inflation Expectations

-US Chicago PMI

-US Jan PPI

-AMP LIMITED ((AMP)) ex-div 2.00c (20%)

-ARCHTIS LIMITED ((AR9)) 1H26 earnings report

-BOSS ENERGY LIMITED ((BOE)) earnings report

-BRIGHTSTAR RESOURCES LIMITED ((BTR)) earnings report

-CHANNEL INFRASTRUCTURE NZ LIMITED ((CHI)) FY25 Earnings

-CAMPLIFY HOLDINGS LIMITED ((CHL)) 1H26 earnings report

-CARMA LIMITED ((CMA)) 1H26 earnings report

-COLES GROUP LIMITED ((COL)) 1H26 Earnings

-DALRYMPLE BAY INFRASTRUCTURE LIMITED ((DBI)) ex-div 6.75c

-HARVEY NORMAN HOLDINGS LIMITED ((HVN)) 1H26 Earnings

-IMEXHS LIMITED ((IME)) earnings report

-INGENIA COMMUNITIES GROUP ((INA)) ex-div 4.8c

-JUPITER MINES LIMITED ((JMS)) 1H26 Earnings

-KINA SECURITIES LIMITED ((KSL)) earnings report

-LENDLEASE GROUP ((LLC)) ex-div 6.20c

-MACH7 TECHNOLOGIES LIMITED ((M7T)) earnings report

-MICROBA LIFE SCIENCES LIMITED ((MAP)) earnings report

-MACQUARIE TECHNOLOGY GROUP LIMITED ((MAQ)) 1H26 earnings report

-MICHAEL HILL INTERNATIONAL LIMITED ((MHJ)) 1H26 Earnings

-METRO MINING LIMITED ((MMI)) earnings report

-MONASH IVF GROUP LIMITED ((MVF)) earnings report

-MICRO-X LIMITED ((MX1)) earnings report

-ORTHOCELL LIMITED ((OCC)) 1H26 earnings report

-ORORA LIMITED ((ORA)) ex-div 5.00c

-PEXA GROUP LIMITED ((PXA)) 1H26 Earnings

-RIDLEY CORPORATION LIMITED ((RIC)) earnings report

-RUBICON WATER LIMITED ((RWL)) 1H26 earnings report

-SUPPLY NETWORK LIMITED ((SNL)) earnings report

-SOMNOMED LIMITED ((SOM)) earnings report

-STRIKE ENERGY LIMITED ((STX)) earnings report

-SOUTHERN CROSS GOLD CONSOLIDATED LIMITED CHEES DEPOSITORY INTEREST REPR 1 ((SX2))

-TPG TELECOM LIMITED ((TPG)) FY25 Earnings

-TETRATHERIX LIMITED ((TTX)) earnings report

-VISTA GROUP INTERNATIONAL LIMITED ((VGL)) FY25 Earnings

-VIRGIN AUSTRALIA HOLDINGS LIMITED ((VGN)) earnings report

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

The Australian share market over the past thirty days…

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author’s and not by association FNArena’s – see disclaimer on the website)

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