NEW YORK: Major artificial intelligence (AI) stocks slumped following the latest hot US inflation report, highlighting investor concerns about the risks posed by rising borrowing costs in this capital-intensive sector.
Among the leading decliners were data centre operator CoreWeave, which fell 16%, AI infrastructure provider Nebius, off 11%, cloud computing giant Oracle, down 9%, and AI server seller Dell Technologies, down 11%.
Together the declines erased some US$80bil of market value.
The declines reflect the impact of tightening financial conditions, as well as the outsize gains scored by some of the biggest beneficiaries of the AI boom.
Barclays on Wednesday downgraded Dell and two other enterprise hardware stocks, noting that Dell shares have quadrupled this year, part of an AI-fuelled investor binge that has resulted in 16 stocks in the S&P 500 technology sector at least doubling this year, according to Reuters calculations.
Concerns over rising borrowing costs also weighed on Wednesday’s other big decliners.
Selling was particularly intense in CoreWeave, which has issued US$22bil of bonds and US$26bil of loans, according to LSEG data.
A CoreWeave bond that was issued in June yielding 9.625% recently yielded 15%.
“We’re getting a whole lot of information suggesting that the largest AI companies may not be generating the earnings or revenue people anticipated. I think that makes everyone nervous about companies like CoreWeave,” said Kim Forrest, chief investment officer at Bokeh Capital Partners.
Coreweave chief executive officer Mike Intrator said in an internal memo the market is acting “irrationally” and that he remains confident in the AI cloud company, Bloomberg reported on Wednesday.
Wednesday’s rout is the latest sign of a market struggling to come to grips with the implications of high inflation at a time when AI-fueled corporate borrowing has helped push up global interest rates.
Investors generally remain sanguine on the sector in part because its largest players, from chip maker Nvidia to the so-called hyperscalers, primarily Alphabet, Microsoft, Meta and Amazon, are highly profitable and widely perceived as well managed, despite concerns about debt. — Reuters
