Financial Markets Under Pressure
Financial markets experienced a downturn on Friday, as investors sold off technology stocks amid growing concerns regarding the stability of companies tied to artificial intelligence (AI). The technology-heavy Nasdaq Composite index fell by 573 points, representing a 2.1% decrease, closing at 26,140. This marked the worst week for the index since June. Meanwhile, the broader S&P 500 and the blue-chip Dow Industrial Average also declined, sinking 1.1% and 0.3%, respectively.
Focus on AI and Corporate Debt
The pressure on chipmakers and other tech firms intensified this week, primarily driven by investor worries over the substantial borrowing required for the rapid expansion of AI capabilities. This expansion necessitates the construction of thousands of data centers needed to power advanced AI models. Companies known as neocloud providers, such as CoreWeave, which supply the necessary computational power, were particularly affected. This is because they are funding much of their capital expenditures through debt and equity sales rather than relying on cash flow.
Market analyst Adam Crisafulli, head of Vital Knowledge, informed that the reliance on debt issuance, rather than organic cash flow, fueled investor apprehension regarding mounting corporate debt. Shares of CoreWeave dropped nearly 12% on Friday and had fallen approximately 24% over the course of the week. Other tech stocks also saw significant declines: Micron Technology fell 5.6%, Advanced Micro Devices dropped 6%, Broadcom decreased by 4.5%, and Intel lost 5.8%. In unrelated news, Tesla stock fell 2.1% after the automotive company revealed a new Roadster sports car that reportedly has capabilities for air thrust.
Inflation and Federal Reserve Outlook
The market downturn was compounded by concerns surrounding rising U.S. inflation, which suggests a deviation from the Federal Reserve’s targeted annual rate of 2%. On Friday, yields on the 10-year U.S. Treasury bonds—a benchmark for mortgages, credit cards, and other loans—remained stable at 5.1%. Earlier in the month, bond yields had surged to their highest levels in over two decades due to heightened concerns about inflation and increasing U.S. government debt.
Some economists predict that the recent high inflation readings could prompt the Federal Reserve to raise interest rates at its next meeting, scheduled for October 28-29. While most traders anticipate the central bank will maintain the status quo on short-term rates, the probability of a rate increase at the December meeting has increased significantly, rising to 74.3% from 50.2% the previous month, according to CME FedWatch, which tracks Fed funds futures prices.
Speaking at a financial leaders meeting in Bangkok, Federal Reserve Chairman Kevin Warsh did not offer any clues regarding potential changes to interest rate policy. It is worth noting that the Fed increased rates at its last meeting in September, bringing the federal funds rate to a range of 3.75% and 4%, marking its highest level since December 2025.
AI Company Valuation Concerns
Crisafulli also noted that the week’s market dip was fueled by uncertainty surrounding Anthropic, an AI company that is slated to go public soon. Investors are currently assessing the company’s ability to sustain its revenue growth momentum. Furthermore, reports from Reuters on Thursday stated that Anthropic investors are now considering valuing the company at $1.5 trillion, a reduction from its initial target valuation of $2 trillion.
