CNBC
Shares of companies in the artificial intelligence sector experienced significant declines on Thursday, contributing to an ongoing global sell-off.
In total, 20 of the most prominent AI and semiconductor firms have lost over $1 trillion in market value this week. This downturn is driven by fears surrounding interest rate increases, AI financing challenges, and mounting competition, all of which are negatively impacting market sentiment.
Specifically, Nvidia saw a decline of approximately 2%, while AMD and Intel experienced a 4% drop each. Dell Technologies suffered an 8% decline. Likewise, neocloud entities reported losses, with CoreWeave down 3%, Nebius declining by 5%, and IREN experiencing a fall of over 8%. Earlier, Micron's shares were down about 5% but managed to rebound into positive territory around noon ET.
Neocloud stocks recovered some of their earlier losses following reassuring statements from Nvidia’s CEO Jensen Huang. Speaking to Bloomberg at an event in Stockholm, Sweden, Huang indicated that there was no need for Nvidia to provide financial backing for CoreWeave, noting that "Their cost of capital is actually decreasing."
The sell-off of technology hardware stocks has extended across both Asia and Europe as the day progressed.
In South Korea, semiconductor giant SK Hynix saw its shares plunge by more than 10%, while competitor Samsung Electronics experienced a decline of 8.73%. Other South Korean technology stocks were similarly affected, with LG Innotek dropping 8.95%, Seoul Semiconductor falling 9.28%, and Samsung SDI decreasing by 6.26%.
Japan's technology investment powerhouse, SoftBank Group, fell by 7.9%. Additionally, semiconductor testing equipment manufacturer Advantest dropped nearly 14%, chipmaking equipment supplier Tokyo Electron lost 6.45%, and Renesas Electronics declined by 8%. In Taiwan, TSMC, the world's largest contract chipmaker, saw a decrease of 1.81%.
In Europe, Dutch semiconductor company ASML saw a decline of 5.2%, Infineon Technologies shed 8.2%, and ASM International was down 8.6%.
Reasons Behind the Stock Decline
The observed declines stem from growing investor apprehension regarding the potential impact of higher borrowing costs on the substantial capital expenditures necessary for the development of AI infrastructure. This sentiment is particularly acute among technology companies that have benefited from the surge in AI investments.
Additionally, concerns regarding a potential global oversupply of memory chips by 2029, as manufacturers increase production to meet the rising demand driven by artificial intelligence, are contributing to the pessimistic outlook.
Recent comments from China's ChangXin Memory Technologies (CXMT), which announced a technological breakthrough that could enhance memory density by packing more data into smaller physical spaces, signal increasing competition within the memory market. Elon Musk also referenced that China would be producing “a LOT of RAM in 2028” in a post on X.
Executives from Broadcom and Intel expressed caution on Monday, citing that financing challenges could pose a significant headwind to the AI expansion. Broadcom's CEO, Hock Tan, indicated that this financing issue might prove to be a more substantial challenge than shortages of chips or electricity.
The downturn followed a volatile day on Wall Street, where technology stocks led declines in the broader market after U.S. inflation data exceeded expectations, raising concerns that the Federal Reserve might further increase interest rates.
The tech-focused Nasdaq Composite index decreased by 1.88%, closing at 26,692.87, while the S&P 500 lost 1.11% to finish at 7,718.94. The Dow Jones Industrial Average experienced a slight decrease of 0.09%.
Dan Ives, a technology analyst at Yorkville Ives, explained that the recent sell-off in AI-related stocks reflects mounting concerns about the costs of financing large-scale infrastructure projects, particularly as U.S. Treasury yields surpass 5%. However, he emphasized that the underlying demand for AI computing power remains strong.
As Ives stated in a recent report, “Higher yields raise the cost of financing these builds, and investors are right to focus on balance sheets and contract structure, but rates are a financing question, not a demand question.”
He concluded that the current pullback represents a potential buying opportunity, reiterating that the AI infrastructure boom is still in its nascent stages despite the rising concern over funding costs. "What would change our view is a demand signal, not a rate signal," he added, noting that signs of potential financial stress would include cuts in capital expenditure plans, canceled contracts, or declining GPU rental prices.
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