A sharp retreat across global financial markets deepened Friday as investors reevaluated massive capital expenditures on artificial intelligence amid renewed concerns over persistent inflation and elevated borrowing costs.
The tech-heavy Nasdaq dropped more than 3 percent below its peak from last week, while the S&P 500 retreated 1 percent from its record high, NBC News reported. Across the globe, 20 of the most valuable artificial intelligence and semiconductor companies lost more than $1 trillion in combined value this week, according to CNBC.
Financing Stress and Heavy Debt
Investor enthusiasm has encountered growing friction as the enormous cost of constructing data centers collides with rising bond yields. Data center operator CoreWeave saw its five-year credit default swap spreads climb past 1,140 basis points, surpassing the 1,000 basis-point threshold widely viewed by analysts as indicating severe distress, CNBC reported. Yields on CoreWeave notes maturing in 2031 jumped to 15.78 percent.
Specialized AI cloud providers, often referred to as neoclouds, face severe structural headwinds. Research firm Gartner projected this week that more than 80 percent of neocloud companies will go out of business by 2030 because of high operational costs and unsustainable business models, Yahoo Finance reported.
Private market signals also caused unease. The Financial Times reported that revenue growth slowed at Anthropic, though the startup still generates roughly $17 billion in revenue and remains profitable, according to NBC News. Meanwhile, prominent market forecaster Ed Yardeni lowered his year-end target for the S&P 500 from 8,400 down to 7,900, pointing to growing hesitation around artificial intelligence investments and higher interest rates.
Global Selloff and Competitive Threats
The downturn reverberated heavily through overseas markets. In South Korea, the benchmark Kospi plunged 7.6 percent on Thursday, setting off an emergency circuit breaker that briefly halted trading, Yahoo Finance reported. Shares of memory chipmakers SK Hynix and Samsung Electronics dropped 11 percent and 9.5 percent, respectively. Japan’s Nikkei fell 4.9 percent, while Hong Kong’s Hang Seng index slid 1 percent.
Traders also registered anxiety over emerging competition from China. Semiconductor manufacturer CXMT reported progress on advanced memory components, stoking concerns among investors that an eventual surge in Chinese chip manufacturing could lead to market oversupply, according to reporting by Yahoo Finance and NBC News.
Even blowout earnings failed to fully insulate manufacturers. Taiwan Semiconductor Manufacturing Company delivered its sixth consecutive quarter of record earnings and forecast that fourth-quarter revenue would climb 58 percent year-over-year, CNBC reported. Despite the record numbers, TSMC shares dropped 2 percent in Taiwan trading.
Macroeconomic Headwinds
Hanging over the market is a stubborn resurgence in U.S. inflation. Government data released Thursday revealed the Producer Price Index jumped 6.3 percent annually in September, outpacing the 5.5 percent estimate compiled by Dow Jones and marking the quickest pace since December 2022. CNBC noted the price surge was propelled by elevated energy costs related to the ongoing U.S. conflict with Iran.
Tech spending has sustained broader economic momentum this year, generating almost half of total U.S. economic growth, according to NBC News. Analysts warn that any significant retreat in tech investments could spill over into the wider labor market and household spending.
Attention now turns to Bangkok, where Federal Reserve Chair Kevin Warsh is scheduled to speak alongside International Monetary Fund Managing Director Kristalina Georgieva on Friday. The appearance represents Warsh’s final public comments before the central bank enters its mandatory quiet period ahead of its Oct. 27-28 policy meeting.
