Major U.S. stock indices declined on a Friday as investors sold shares in technology companies, specifically those involved in artificial intelligence (AI). The Nasdaq Composite fell 573 points, or 2.1%, to 26,140, marking its largest weekly percentage decline since June. The S&P 500 dropped 1.1% and the Dow Jones Industrial Average decreased by 0.3%.
The market movement followed investor concerns regarding the level of debt incurred by companies building data centers and computing infrastructure for AI models. Adam Crisafulli, head of Vital Knowledge, stated that "neocloud" companies, which provide computing power for AI, have been financing capital expenditures through debt and equity rather than cash flow.
CoreWeave shares fell nearly 12% on Friday and ended the week down approximately 24%. Other chipmakers saw declines, with Micron Technology down 5.6%, Advanced Micro Devices down 6%, Broadcom down 4.5%, and Intel down 5.8%. Additionally, Reuters reported that investors are considering a $1.5 trillion valuation for Anthropic ahead of its initial public offering, a decrease from the previous $2 trillion target.
Beyond the technology sector, Tesla shares declined 2.1% following the debut of a new Roadster model. Broader economic data also influenced the market, as recent inflation readings moved further from the Federal Reserve’s 2% annual target. While the 10-year U.S. Treasury yield remained at 5.1% on Friday, yields reached a two-decade high earlier this month due to concerns over inflation and government debt.
The shift in investor sentiment may impact the borrowing costs and expansion plans of tech firms. If companies like CoreWeave or chipmakers like Intel and AMD continue to face downward pressure on their stock prices, they may find it more expensive to raise the capital necessary for data center construction. Consumers and small businesses may also notice indirect effects through the credit market; with 10-year Treasury yields at 5.1%, interest rates for mortgages and credit cards remain elevated. The market's reaction to inflation data suggests that the cost of borrowing is unlikely to decrease in the immediate future, as traders adjust their expectations for central bank policy.
The Federal Reserve is scheduled to meet on Oct. 28-29 to determine whether to adjust interest rates. While the federal funds rate currently sits between 3.75% and 4% following a hike in September, CME FedWatch data shows that the probability of a rate increase at the December meeting has risen to 74.3%. This is up from 50.2% just one month ago. Investors will be monitoring these upcoming meetings and the Anthropic public offering to see if the valuation of the AI sector continues to undergo adjustment.