AI Stock Sell-Off Deepens as Investors Worry About Rising Debt Costs

Houston — AI Stock Sell-Off Deepens as Investors Worry About Rising Debt Costs

Concerns about rising financing expenses and the long-term sustainability of artificial intelligence investment intensified the technology sector’s sell-off on Thursday, adding to pressure on US stock futures.

Nasdaq 100 futures fell 1.26%, while S&P 500 futures declined 0.35% at 4:04 a.m. ET. Dow futures moved higher, gaining 0.39%. The contrasting movements highlighted continued weakness in technology stocks as investors reconsidered the outlook for companies with significant exposure to AI spending.

The latest losses followed Wednesday’s market decline, when the Nasdaq and S&P 500 posted their biggest single-day drops since July. Stronger-than-expected US inflation data fueled expectations that the Federal Reserve might raise interest rates again, adding to the market’s downward momentum.

Higher borrowing costs pose a particular challenge for companies investing heavily in data centers, computing infrastructure and cloud services. Expanding these operations requires substantial capital, making financing expenses an important factor in how investors assess their prospects.

Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest manufacturer of advanced chips, added to investor concerns after expressing caution about 2027 amid macroeconomic uncertainty. Its comments came even as the company reported its sixth consecutive record quarterly profit.

CoreWeave, a data center operator carrying substantial debt, also remained under pressure. Its shares fell 4.5% in premarket trading on Thursday after plunging 15% during Wednesday’s session.

Oracle shares dropped 2%, extending a decline of nearly 9% in the previous trading session. Bonds issued by CoreWeave and Oracle also faced selling pressure, driving their yields to record highs on Wednesday.

Losses spread across the semiconductor industry. Nvidia shares slipped 1.3%, while Micron Technology fell 4% and Advanced Micro Devices declined 1.9%.

The declines among these companies, alongside other chipmakers, major cloud providers and large technology firms, contributed to Wednesday’s sell-off, which wiped $80 billion from market value.

The potential consequences extend beyond the performance of individual stocks. If spending on AI infrastructure slows for an extended period, expectations for US corporate investment and economic growth could also weaken.

Mohit Kumar, an economist at Jefferies, cautioned that a slowdown in AI infrastructure development would signal a sharp deterioration in expectations for US economic growth.

Kumar added that the firm expected the earnings season to show that corporate earnings and demand remained strong. However, Jefferies planned to reduce some positions ahead of the US midterm election.

Investors are also monitoring upcoming economic reports for clues about inflation and the Federal Reserve’s monetary policy. Producer price data were due Thursday morning, followed by September retail sales, initial jobless claims and several business surveys.

Expectations for further Federal Reserve tightening have risen. Data from CME Group’s FedWatch tool showed traders assigning a 27% probability to an interest-rate increase in October, up from 20% a week earlier. The likelihood of a 25-basis-point increase in December stood at 67%.

Technology investors now face the challenge of weighing continued demand for AI-related products against the substantial financial commitments required to build the infrastructure supporting them. Persistent uncertainty surrounding interest rates and corporate financing could continue to weigh on the sector.