Chip Stocks Head for Worst Week Since July on AI Retreat
By @sharedot · · 6 pages
- Business
- Stock Market
- Semiconductors
- AI Investing
- Oil Markets
Semiconductor shares are on pace for their biggest weekly drop since July as investors rotate out of AI names, with crude topping $100 a barrel.
A rotation out of tech deepens Friday
Stocks moved lower again on Friday as traders headed for a mostly losing week amid a rotation out of tech and artificial intelligence-related names.
According to CNBC, the S&P 500 traded down 1%, the Nasdaq Composite shed 1.9%, and the Dow Jones Industrial Average outperformed with a 241-point, 0.5% decline.
Chipmakers were lower yet again, with the VanEck Semiconductor ETF (SMH) losing 1% on declines in Micron Technology, Advanced Micro Devices and Sandisk.
The SMH is down 8% week to date, on pace for its biggest weekly decline since July, and CNBC reports the broader Nasdaq has shed more than 4% this week while the Dow is actually up slightly.
Debt jitters hit CoreWeave and the AI buildout
A distinctive feature of this pullback is anxiety about leverage funding the AI buildout.
CNBC reports that CoreWeave, whose total debt has risen to more than $51 billion, fell 10% on Friday, leaving the stock down more than 23% for the week to date, and its shares had already been 4% lower in premarket trading after a volatile prior session.
"The question is: Is this a systemic issue?" said Michael Rosen, Angeles' chief investment officer, who added that increased debt issuance is something to watch but that markets are "not remotely close" to levels of excessiveness.
CNBC also notes the sell-off is shifting perceived valuations, with OpenAI's pricing down more than 4% in 24 hours on Hyperliquid perpetual futures while Anthropic's rose 2.4% to just over $2 trillion.
Oil above $100 as inflation worries build
Energy shares gained as oil surged: CNBC reports West Texas Intermediate futures rose 2.9% to $100.78 per barrel and Brent crude advanced 3.3% to $109.37, as Iran escalated attacks in the Strait of Hormuz and Ukraine vowed to keep striking Russian refineries.
Elevated energy prices are compounding inflation concerns, with wholesale inflation seeing its biggest gain since 2022, per CNBC, and consumer inflation remaining well above the Federal Reserve's 2% target.
Across the Atlantic, Investment Week reports European markets were in the green even as eurozone inflation rose. CNBC also notes the CME Group's FedWatch tool points to an 85% chance the Fed holds rates at its Oct.
27-28 meeting, and Wells Fargo Investment Institute is urging caution on longer-duration bonds.
Wall Street turns cautious on what comes next
Strategists are bracing for more turbulence.
According to CNBC, Bank of America strategist Michael Hartnett laid out four reasons the bank is in "risk-off" mode for the next month: higher yields and the "need for [the Federal Reserve] to hike on Oct. 28"; elevated oil prices from the wars in the Middle East and Ukraine; a rising risk of a "wave-like" Democratic sweep in the midterms; and recent price action in AI-linked names.
Some bargain hunters see opportunity, however — CNBC reports First Eagle portfolio manager Manish Gupta added to Workday during the year's "SaaSpocalypse" and has been rewarded with a 55% third-quarter surge.
With earnings season underway, including beats from Travelers and Independent Bank, investors are watching whether the AI unwind stays contained or spreads further into the real economy.