AI stocks shed $1 trillion as CoreWeave credit stress and inflation weigh on sentiment

More than $1 trillion in market value evaporated from 20 of the world's largest AI and semiconductor stocks this week, driven by credit concerns at CoreWeave and hotter-than-expected inflation data. The sell-off marked a sharp reversal for investors who had previously embraced the AI trade with optimism, now facing a sector under pressure from funding worries and macroeconomic headwinds.

CoreWeave has become a focal point of anxiety, with yields on its debt climbing as investors price in higher risk. The yield to maturity on the company's 9.75% bond due in 2031 reached 15.78%, while the spread on its five-year credit default swaps briefly exceeded 1,140 basis points. Gavan Nolan, executive director of fixed income pricing at S&P Global Market Intelligence, noted that a spread level of 1,000 basis points or above is generally indicative of credit distress. This financial strain has contributed to a broader rotation out of AI-related names, with Nvidia down 1.84%, AMD down 1.5%, Intel down approximately 2.8%, and Dell Technologies down 6.8%.

Beyond financing, leadership in the sector is grappling with safety concerns. Nvidia CEO Jensen Huang told CNBC during a media briefing in London that the company "absolutely must" work with Chinese AI firms to monitor risks associated with the technology. Huang's comments come as researchers from labs including OpenAI and Anthropic have called for a slowdown in development, citing existential risks. Despite these warnings, demand for hardware remains robust, evidenced by Taiwan Semiconductor Manufacturing Company's record profit for a sixth consecutive quarter.

TSMC expects fourth-quarter revenue to be 58% higher than a year earlier, driven by strong demand for advanced chipmaking technologies. Jordan Klein, an analyst at Mizuho Securities, described the competition for supply as "extremely fierce," noting that customers are seeking to secure leverage over available capacity. The company's capacity to produce more than 17 million 12-inch equivalent wafers last year is being tested by this surge in demand.

Macro factors continue to complicate the picture for tech stocks. Producer price growth in the U.S. surpassed expectations, climbing 6.3% year on year, the fastest increase since December 2022 and well above the 5.5% projected by economists polled by Dow Jones. This data follows September consumer inflation figures that also came in above expectations, underscoring persistent inflationary pressures from energy amid the U.S. war with Iran.

With Federal Reserve Chair Kevin Warsh scheduled to appear alongside IMF Managing Director Kristalina Georgieva in Bangkok on Friday morning, market attention turns to potential signals on the rate path. Warsh's remarks will be his last scheduled public comments before the central bank's blackout period ahead of its Oct. 27-28 policy meeting. Traders are weighing how resurgent inflation might influence the Fed's next move, with implications rippling across equities, bonds, and currencies.

In a separate development, Netflix announced that Bela Bajaria will step down as chief content officer, with former Disney executive Peter Rice taking over effective Oct. 26. Rice most recently oversaw Disney's cable channels, news programming, and major sporting event coverage. In his new role at Netflix, he will lead the global content organization, including scripted and unscripted series, film, and live events.