US technology stocks lost more than $1 trillion in market value on Friday, October 16, as investors questioned when the hundreds of billions of dollars that the largest tech companies are borrowing and spending on artificial intelligence and data centers will start to pay off.
The Nasdaq 100 fell 2.5% and closed about 7% below the record it set the previous week. Chipmakers fell harder: the Philadelphia Semiconductor index dropped 3.8%, its eighth straight daily decline and its longest losing streak since 2008. Even after the slide, CNN reported that chip stocks were still up more than 50% for the year.
Companies that rent out AI computing power were at the center of the selling. CoreWeave, a cloud provider backed by Nvidia that has borrowed tens of billions of dollars to expand, has lost more than 25% of its value over the past month, and it was one of the two worst performers in the Nasdaq 100 on Friday, alongside Nebius. CNN reported that CoreWeave's bond yields had recently risen to levels that signal a higher risk of default.
"It's unclear that (CoreWeave is) going to get a sufficiently good return to pay down the debt that they borrowed," Gil Luria, head of technology research at D.A. Davidson, told CNN, adding that "they are the subprime tranche of the AI trade, and that's why they're selling off first."
Interest rates add to the pressure on companies that fund their AI expansion with debt. The Federal Reserve raised rates by a quarter of a percentage point in September, and rising energy prices, with Brent crude touching $110 a barrel on Friday, make another increase this year more likely.
Thomas Martin, senior portfolio manager at Globalt Investments, told CNN: "The market sells first, asks questions later." A day before the sell-off, analyst Ed Yardeni cut his year-end target for the S&P 500 to 7,900 from 8,400.
