AI and chip stocks lose momentum as funding, inflation concerns weigh on sentiment

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AI, chip stocks lose momentum

Highlights

CoreWeave faces credit stress as yields on its 9.75% bond due 2031 rise to 15.78% and CDS spreads surpass 1,140 basis points.
AI and semiconductor stocks lose over $1 trillion in combined market value this week, with Nvidia down 1.84%, AMD 1.5%, Intel 2.8%, and Dell 6.8%.
September U.S. producer price index climbs 6.3% year on year, the fastest since December 2022, heightening Federal Reserve policy uncertainty before the Oct. 27-28 meeting.

Credit pressure and spending worries hit AI trade

As reported by CNBC, concerns over heavy corporate spending on artificial intelligence and mounting credit stress at CoreWeave are driving a broader retreat from AI-linked stocks. The pullback comes as investors reassess risk across the sector, with higher interest rates and financing costs adding to pressure on valuations.

CoreWeave is facing intensifying scrutiny as yields on its 9.75% bond due in 2031 climb to 15.78%, a level that signals investors are demanding much higher compensation to hold its debt. At the same time, the spread on its five-year credit default swaps at one point rises above 1,140 basis points, a threshold widely seen as a sign of credit distress.

The shift in sentiment is spilling across large-cap technology names. Nvidia falls 1.84%, AMD loses 1.5%, Intel drops about 2.8% and Dell Technologies sinks 6.8%, while the combined market value lost by 20 major global AI and semiconductor stocks exceeds $1 trillion so far this week.

Strong chip demand meets safety and macroeconomic risks

Even as investors grow more cautious, demand for advanced chips continues to support parts of the supply chain. Taiwan Semiconductor Manufacturing Company posts a record profit for a sixth straight quarter and says fourth-quarter revenue is expected to be 58% higher than a year earlier, driven by strong demand for advanced chipmaking technologies.

That demand is arriving alongside sharper debate over the industry's longer-term risks. Nvidia chief Jensen Huang reiterates that the company "absolutely must" work with Chinese AI companies to monitor risks around potentially dangerous technology, as broader discussions over AI safety intensify following warnings from researchers at labs including OpenAI and Anthropic.

Inflation is adding another layer of uncertainty for the sector and for global markets. After U.S. consumer inflation for September comes in above expectations, producer prices also exceed forecasts, with the PPI rising 6.3% year on year, its fastest increase since December 2022, reinforcing expectations that any signal from the Federal Reserve before its Oct. 27-28 policy meeting could move equity, bond and currency markets.

In our earlier article on the AI-linked tech stock selloff driven by financing-cost fears, we explained how hotter-than-expected inflation data reignited expectations for additional Fed rate hikes and pressured major technology names. We also highlighted CoreWeave’s and Oracle’s bond-market stress as yields jumped, reinforcing concerns that higher borrowing costs could curb funding for large-scale AI infrastructure spending.

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