High-flying technology stocks are facing a downturn this week as investors grow increasingly skeptical about whether the AI boom can meet lofty inflation report strengthened the case for the Federal Reserve to implement further interest rate hikes. The S&P 500 declined 1.11% and the Nasdaq Composite dropped 1.88%, both marking their worst single-day performance since July.
Companies essential to the AI data center buildout—often referred to as the “picks and shovels” of the industry—saw their shares stumble, impacting everything from cloud providers to semiconductor manufacturers. Chipmaker Marvell (MRVL) fell 8.7%, Oracle (ORCL) slid 8.8%, and Dell (DELL) dropped 11.3%.
A benchmark index tracking semiconductor stocks retreated 4.3%, bringing its total decline to roughly 12% over the past week. Nvidia (NVDA) shares fell 3.2%, leaving the stock down approximately 7.5% from the record high it reached earlier this month.
Investors are currently weighing a variety of factors that are dampening enthusiasm for AI. Rising bond yields and persistent inflation have pushed borrowing costs higher, making the expansion of data centers more expensive. This is fueling anxiety regarding the more vulnerable, debt-heavy segments of the AI ecosystem.
Meanwhile, chip stocks have endured a volatile week following news that Chinese semiconductor firm CXMT has made progress on advanced memory chips. This development is stoking fears of increased competition for US and South Korean manufacturers, whose current valuations are “priced to perfection,” according to analysts.
Semiconductor stocks had previously surged on the assumption that companies would secure massive profits due to the AI boom’s insatiable appetite for chips. However, a potential slowdown caused by higher interest rates or increased competition from China could dampen projections for future revenue and growth.
The performance of these “picks and shovels” providers is significant because tech and AI stocks have been the primary drivers behind the market’s record highs this year. With other sectors struggling under the weight of higher bond yields, the pressure on these specific stocks has intensified.
“There’s just so much good news priced into the chip sector right now that you’re going to find it’s susceptible to meandering without some fresh catalysts,” Steve Sosnick, chief strategist at Interactive Brokers, told CNN.
Following strong rallies earlier in the year, Wall Street has continued to raise the bar for chipmaker earnings, creating a scenario where profit-taking or disappointment is more likely.
“Trees don’t grow to the sky,” Sosnick said. “You can’t just go up forever and ever and ever, assuming that nothing is going to go wrong.”
Investors are also keeping a close eye on riskier corners of the AI market. CoreWeave (CRWV), a “neocloud” provider backed by Nvidia that leases computing power for AI development, plunged 15.5% on Wednesday after market commentators expressed concern over a spike in the company’s bond yields.
The firm carries tens of billions of dollars in debt on its balance sheet as it borrows heavily to expand its operations and market share. As interest rates climb, the cost of servicing that debt is becoming increasingly burdensome.
The market is becoming more focused on how companies burdened with massive debt will manage their obligations, particularly amid concerns regarding delays in data center projects and uncertainty surrounding the timing of initial public offerings for firms like Anthropic and OpenAI.
“There’s just so much money being thrown at this, and a lot of it has to be borrowed, and borrowed at increasingly high interest rates,” Sosnick said. “It’s an interesting conundrum.”
