AI Infrastructure Stocks Tumble as Hot Inflation Data Revives Fed Rate-Hike Bets
CoreWeave plunged 15.1%, Nebius fell 9.5% and Oracle dropped 7.2% on Wednesday after hotter-than-expected September inflation revived bets on another Federal Reserve rate hike, raising the cost of the debt fueling the artificial intelligence buildout.
Shares of the debt-heavy companies building out artificial intelligence infrastructure tumbled on Wednesday after hotter-than-expected inflation data revived bets that the Federal Reserve will raise interest rates again.
CoreWeave shares dropped about 15% after a social media post showed its bond yield had hit 15%, spooking investors about rising borrowing costs, the Motley Fool reported. The stock is on track to wipe out about a quarter of its value this month, according to Reuters. Rival neocloud firm Nebius fell about 9.5%, putting it on pace to erase nearly 20% for the month.
Data center operators Applied Digital and IREN fell 8.8% and 9.9%, respectively, Reuters reported. Oracle, which has borrowed heavily to fund its AI expansion, dropped 7.2%, and most of its dollar bonds also declined. Server makers Dell and HPE fell 10.3% and 6.4% after Barclays downgraded both stocks to equal-weight from overweight.
The consumer price index rose 3.7% in September, above economists’ expectations, the Motley Fool reported, with gasoline 34% more expensive than a year earlier. The S&P 500 fell 0.91% to 7,734 by midday, the Nasdaq Composite dropped 1.31% to 26,840, and the Dow Jones Industrial Average slipped 0.09% to 51,620. The 10-year Treasury yield rose to 5.24%, while gold fell 1.79% to $4,083.51 an ounce.
Borrowing costs test the AI buildout
Higher rates raise the cost of borrowing to build data centers and buy AI chips. “Investors are questioning whether the AI buildout will generate the returns that were expected,” Kim Forrest, chief investment officer at Bokeh Capital Partners, told Reuters. The cost of insuring Oracle’s and CoreWeave’s debt against default climbed to record highs, according to S&P Global Market Intelligence data.
“Valuations have run, commodity costs have helped revenues, and we don’t see a meaningful AI inflection yet,” Barclays said. Reuters reported that traders now see a second Fed rate hike coming as soon as this month following the hot price data.
Elsewhere, Bank of America shares dropped more than 6% after a $1.2 billion regulatory fine hit profits, the Motley Fool reported. GlobalFoundries moved the other way, jumping after it was selected as the technology provider and operator for a U.S.-Japan semiconductor initiative worth up to $21 billion in funding.
Reporting based on coverage by Reuters and the Motley Fool.
