AI, chip stocks lose more than $1 trillion as funding and rate concerns mount

Global technology stocks extended a sharp selloff on Thursday, with AI and semiconductor shares leading the decline. U.S. markets closed lower: NVIDIA fell 1.84%, AMD lost 1.5%, Intel dropped about 2.8%, and Dell Technologies plunged 6.8%. Asia suffered steeper losses. SK Hynix tumbled more than 10% in one session, Samsung Electronics fell 8.73%, and SoftBank Group slid 7.9%. CNBC reported that as of Thursday, the combined market value of the 20 largest AI and semiconductor stocks globally had fallen by more than $1 trillion. The iShares Semiconductor ETF (SOXX) recorded its eighth straight decline, with a cumulative drop of roughly 12.7% over that stretch, the longest losing streak in the 11-year history of the ETF, according to Dow Jones Market Data. Jensen Huang, CEO of NVIDIA, told Bloomberg at an event in Stockholm that he believed NVIDIA did not need to endorse CoreWeave, adding that "their cost of capital is actually declining." The comment spurred an intraday rebound in neocloud stocks. CoreWeave closed up 5.94%, and Nebius rose 1.29%. Multiple negative catalysts reinforced one another, creating layered selling pressure rather than a response to a single event. Inflation data acted as the trigger. The U.S. September consumer price index, released on Wednesday, came in above expectations, prompting markets to raise bets on further Federal Reserve rate hikes. The Nasdaq Composite closed down 1.88% at 26,692.87. The S&P 500 fell 1.11% to 7,718.94. Data from Anthropic also weighed on sentiment. The Financial Times reported that the AI startup told private investors on Wednesday that third-quarter revenue reached $16.8 billion, up about 50% from the prior quarter. That growth was far below the roughly 145% quarter-over-quarter increase in the second quarter. D.A. Davidson analyst Gil Luria wrote in a client note that the market appeared to interpret the Anthropic update as a negative signal, understandable given heightened sensitivity to AI-related trading. Luria took a more neutral view. He noted that Anthropic generated positive cash flow in the third quarter, indicating that it and OpenAI are not inherently unprofitable business models. From a broader AI industry perspective, he wrote, overall AI usage and spending do not necessarily show signs of slowing. Competition in China is intensifying. Last weekend, CXMT announced a breakthrough in a new architecture that allows more data to be stored in a smaller space. Elon Musk then posted on X that China would produce massive amounts of memory chips by 2028. The CEOs of Broadcom and Intel both warned on Monday that financing issues could become a major obstacle to AI expansion. Broadcom CEO Hock Tan said the challenge could even surpass shortages of chips or power. Rising interest rates directly affect the return on investment for AI infrastructure, a core rationale behind the selloff. James Vrachas, executive director at investment bank Post Oak Group, told MarketWatch that chip stocks had already priced in a large portion of future growth expectations, with current prices reflecting those forecasts. Under these conditions, even a slight shift in sentiment or questioning of spending could have a significant impact on stock prices. Believing in the long-term potential of AI is different from believing that every company benefiting from this growth is fairly valued. Baird investment strategist Ross Mayfield told MarketWatch that rising Treasury yields are pressuring the chip sector, particularly high-growth stocks and companies on the more aggressive end of the AI risk spectrum that rely heavily on external financing. He said CPI data could heighten the urgency for the Fed to raise rates, creating significant pressure on short-term interest rates and directly hitting borrowers with weaker financial fundamentals or floating-rate debt tied to short-term rates. Mayfield added that even hyperscalers are not entirely immune to interest rate changes. The largest and most cash-rich companies must reassess the return on investment for these projects, and since much of the market momentum is built on hyperscaler spending on hardware and data center infrastructure, this casts a shadow over the entire supply chain. Asia and Europe recorded deeper declines, with South Korean and Japanese stocks hit hardest. Selling sentiment from U.S. markets spread rapidly to Asia and Europe, where losses generally exceeded those in the U.S. On Thursday, South Korean chipmaker SK Hynix plunged more than 10% in one session, Samsung Electronics fell 8.73%, LG Innotek dropped 8.95%, Seoul Semiconductor declined 9.28%, and Samsung SDI slid 6.26%. The Korea Composite Stock Price Index, or KOSPI, neared its lowest closing level since April. Japan also suffered heavy losses. SoftBank Group fell 7.9%, semiconductor test equipment provider Advantest plunged nearly 14%, chip manufacturing equipment supplier Tokyo Electron dropped 6.45%, and Renesas Electronics declined 8%. TSMC fell 1.81%. In Europe, Dutch semiconductor equipment giant ASML slipped slightly, Infineon fell 5%, and ASM International dropped 7%. Despite weak market sentiment, some analysts believe the selling pressure has not yet reached a material deterioration in AI demand. Yorkville Ives analyst Dan Ives wrote in a report that the selloff reflects concerns over financing costs, not skepticism about demand for AI computing power. The rise in U.S. Treasury yields above 5% has indeed increased financing costs for these infrastructure projects; it is reasonable for investors to focus on balance sheets and contract structures, but interest rates are a financing issue, not a demand issue. Ives believes the current moment presents a buying opportunity and says the AI infrastructure boom is still in its early stages. He clearly identifies the true warning signs to watch: demand signals, not interest rate signals. Those include hyperscale cloud providers cutting capital expenditure plans, contract cancellations, or declining GPU rental prices. Gabelli Funds portfolio manager Hendi Susanto told MarketWatch that many chip and semiconductor equipment companies have remained financially strong with ample free cash flow. He expects most of them to end the year on a strong note, particularly those where demand still outstrips supply. He also noted that the upcoming earnings season for tech companies will reveal the extent to which investors have priced in inflation concerns. Risk Disclaimer and Limitation of Liability: Markets carry risks; invest with caution. This article does not constitute personal investment advice and has not taken into account the specific investment objectives, financial situations, or needs of individual users. Users should consider whether any opinions, views, or conclusions presented here are suitable for their particular circumstances. Investment decisions based on this content are made at your own risk. Source: Wall Street Journal.