Nothing kills a victory lap like a railroad. The AI stock selloff just handed Wall Street an awkward history lesson, and the Wall Street Journal calls the wobble a reminder that this time isn’t different.
This week’s numbers make the case better than any column could.
The Nasdaq Composite fell 2.14% on Friday, Oct. 16, according to CNN. That left it down roughly 4.5% for the week, its worst stretch since June. The S&P 500 dropped 1.09% on Friday and nearly 2% on the week. Both indexes had hit record highs only about 10 days earlier (so much for enjoying the view from the top). For a closer look at the damage, see our report on Nvidia, AMD and CoreWeave sinking.
The WSJ’s Point: Big Bets Have a Past
The WSJ piece, summarized by Biztoc, makes an argument about history. The AI build-out hasn’t shown it can avoid the problems of past massive capital projects. Think railways and the internet. The full article sits behind a paywall, so this summary is all we can speak to directly.
The history behind it is simple. Railroads and the early internet were real, world-changing technologies. Still, they also left plenty of investors holding the bag.
Both things can be true at once, and this AI market wobble is the reminder.
Behind the AI Trade Selloff: It’s the Debt, Not the Demand
Here’s the thing, and it matters for your portfolio. Analysts say the market is not asking whether anyone wants AI. Instead, it’s asking whether the spending will pay off.
Demand looks strong. One analysis cited by INDmoney points to Azure growth of 43%. It also shows Nvidia data center revenue up 92% in their latest quarters. That is one blog’s tally, so treat it as a data point rather than gospel.
The pain is landing where the borrowing is. CoreWeave is a so-called neocloud that rents computing power to AI companies. It fell almost 12% on Friday and lost about a quarter of its value for the week. Its bonds also sold off hard, pushing yields above 15%, per Reuters via Yahoo Finance.
Gil Luria, head of technology research at D.A. Davidson, told CNN it is unclear that CoreWeave will earn a good enough return. That return would need to pay down what it borrowed. He has called neoclouds the “subprime tranche of the AI trade.” Ouch.
A $1 Trillion Tech Stock Selloff
The damage was global. Twenty of the world’s most valuable AI and semiconductor stocks shed more than $1 trillion in value in the first four days of the week, CNBC reported. That’s trillion, with a T.
Nvidia, AMD, Intel and Dell all slid on Thursday, with Dell down 6.8%. Chip hubs in Taiwan, South Korea and Japan fell overnight. According to CNN, the chip-stock index is down roughly 20% from its June peak. Dell’s founder felt it personally, as our story on Michael Dell’s $36 billion two-day loss shows.
Even the pros got hit. Goldman Sachs prime brokerage data showed global fundamental long-short hedge funds lost money every day this week. They were down 2.9% through Oct. 15, though still up 14.3% for the year.
Analysts pointed to rising borrowing costs, mounting AI debt, Chinese competition, inflation and a jump in oil prices on Friday. Meanwhile, Nvidia CEO Jensen Huang pushed back on the debt worry. He told Bloomberg in Stockholm that “their cost of capital is actually decreasing.”
What to Watch Monday After the AI Stock Selloff
The next test comes at Monday’s open. Watch CoreWeave’s bonds and any fresh signs of stress among the companies borrowing to build data centers.
If you own a tech-heavy fund, you own some of this story, so check what’s in it. Our explainer on what the Nasdaq slide means for your 401(k) can help.
Maybe this time really is different. But when your yields cross 15%, the burden of proof just got heavier.
