Chip stocks decline amid AI debt concerns

In Short:
– Semiconductor stocks dropped for the eighth day, with concerns over AI financing impacting values significantly.
– CoreWeave’s stock fell 25% this week due to rising bond yields and oil prices.

Semiconductor stocks declined for the eighth consecutive day, reflecting increased concerns over financing the artificial intelligence sector. The Philadelphia Semiconductor Index saw a drop of 3.8% on that day, accumulating an 11.4% loss over the week, marking its worst performance since April 2025.The Nasdaq Composite fell by 2.14% on Friday and roughly 4.5% for the week, its poorest showing since June. The S&P 500 lost 1.09% for the day and nearly 2% over the week, with U.S. chip market values decreasing by about $2 trillion according to reports.

CoreWeave struggles

Much of the focus has been on CoreWeave, which has heavily invested in AI computing power but is facing rising bond yields that reflect financial distress. The stock experienced a nearly 12% drop on Friday and a 25% decline over the week.

Concerns are exacerbated by rising oil prices and a 10-year Treasury yield approaching 5.09%. Investors are further reacting to advances in chip technology by Chinese firm CXMT.

South Korea’s Kospi index fell 14.5% over the week, highlighting the impact on major corporations like SK Hynix and Samsung Electronics. A significant plunge last Thursday resulted in a trading halt.

Wider sell-off

The semiconductor index is now over 20% below its June peak but remains up more than 50% for the year. Analysts suggest that current valuations for companies like Nvidia, Broadcom, and Micron mirror those seen after the dot-com crash.

Despite the downturn, Nvidia CEO Jensen Huang remains optimistic about recovery. However, market voices have begun questioning the profitability of recent AI investments amid escalating costs.

The sell-off trend has also spread globally, with South Korea and China’s markets reflecting substantial declines. This week, leading semiconductor stocks collectively lost over $1 trillion in market value.

Hedge funds are facing challenges, with reports indicating they may be entering a period of deleveraging as risks mount. As AI stocks slide, investors have shifted focus towards government bonds, responding to inflation anxieties.