Tech Stocks Tumble as AI Debt Fears Rattle Wall Street
The Nasdaq fell 4.5% for its worst week since June as investors questioned whether the AI boom's massive borrowing can pay for itself. CoreWeave, the debt-funded AI cloud stock, lost a quarter of its value in five days.
The Nasdaq had its worst week since June. The index fell 4.5% over five sessions, including a 2.1% drop on Friday, the Associated Press reported.
The worry is debt. Investors are asking whether the massive spending on data centers and computing hardware behind the AI boom can earn enough to cover the borrowing that paid for it.
CoreWeave is the face of that worry. The AI cloud provider slumped about 12% on Friday to $61.39, leaving it down roughly 25% for the week, according to TradingKey. Reuters put the company's debt load at around $50 billion. Yields on some of its bonds pushed above 15%.
Goldman Sachs flagged the strain. Spreads on high-yield AI debt widened 25 basis points in two days, reaching 360 basis points above U.S. Treasuries — a sign lenders are charging more to finance AI projects.
Nvidia chief executive Jensen Huang pushed back. Speaking at an event in Stockholm, he said of CoreWeave: “Their cost of capital is actually decreasing.” Nvidia shares still slipped about 1.5% on Friday.
The selling hit chipmakers hard. The Philadelphia Semiconductor Index fell 3.83%, with all 30 of its members ending the day down. Arm Holdings dropped nearly 7%. AMD lost about 6%. Intel and Micron each fell more than 5.5%.
Meta fell nearly 4%. Apple was the only member of the Magnificent Seven to rise on the day.
Interest rates added to the pressure. The 10-year Treasury yield hovered above 5% after spiking as high as 5.33% on hotter-than-expected inflation data earlier in the week. Federal Reserve Chair Kevin Warsh declined to signal upcoming moves at an IMF meeting in Bangkok: “It’s a new chapter at the Fed, and we’re not in that business anymore.”
Traders are now pricing a 17% probability of a rate hike at the Fed’s late-October meeting, down from 28% a day earlier, according to CME FedWatch data — and an 89% chance of a hike by December.
“It certainly feels like the narrative in the market is a little bit jittery,” said Garrett Melson, a portfolio strategist with Natixis Investment Managers Solutions.
Attention now turns to earnings season. Netflix reports on October 20, with Meta, Tesla and other major names to follow.
