The S&P 500 just had its biggest weekly drop since June, yet it finished only about 2% below the record high it set this month. The bottom line: a swoon in heavyweight tech, AI and chip stocks has rattled nerves, but nothing has broken.
Debt is the new worry
By the numbers, the stress point is CoreWeave, an AI cloud company carrying about $50 billion in debt. Its shares tumbled this week and credit default swaps on the firm surged. Borrowing costs have jumped as the Iran war and higher oil pushed bond yields to their highest in more than 20 years, and the Federal Reserve is hiking again to fight stubborn inflation. That puts the debt-funded corners of the AI boom under a harsher light.
Dan Greenhaus, a strategist at Solus Alternative Asset Management, does not see a canary in the coal mine. “How many canaries have we killed in the coal mine over the last three years,” he told CNBC, as investors seized on each new sign of weakness before the market made new highs. He called CoreWeave’s unsecured debt “the riskier of the riskier AI buildout play,” and noted that earnings from chip suppliers such as Taiwan Semiconductor show demand holding up. Still, he does not expect the AI ecosystem to finance itself indefinitely as rates rise. “As rates move higher, the more speculative tails so to speak of the buildout are going to be called into question, and right now that’s CoreWeave.”
CoreWeave’s side: CEO Mike Intrator told employees in a memo that the company’s backlog of deals is more than enough to cover its debt, and said markets can “misunderstand and act irrationally.” Nvidia, a shareholder, also stood behind it. Jensen Huang told Bloomberg the company needs no financial backstop and that its cost of capital is falling.
The spending bill
The figure that matters is $1.2 trillion. That is what Goldman Sachs expects five AI hyperscalers, Meta among them, to spend on capital projects next year combined. Investors will note that this outlay is behind a forecast jump in third-quarter earnings of more than 30% for S&P 500 companies, per LSEG IBES.
Kevin Shea, a senior equity analyst at BNY Wealth, framed the test: whether hyperscaler profitability can grow faster than their capex. Gartner offered a harsher reading on Wednesday. AI data center owners need roughly $8.5 trillion in cumulative revenue through 2030 to cover spending, financing and a 12% return, while AI revenue flowing to data centers will reach $3.6 trillion at most. That leaves more than $4 trillion in assets exposed to write-down risk through 2032. Bank of America analysts added that the boom is following a classic capital cycle, one that tends to end in disappointment even when the technology delivers.
Wall Street turns cautious
Deutsche Bank and RBC Capital Markets strategists each trimmed their tech recommendations. On October 9, Deutsche said the rotation into tech had “run far and the risk-reward no longer looks favorable in the near term.”
Garrett Melson, a portfolio strategist at Natixis Investment Managers Solutions, called the mood “a little bit jittery.” In his words, this is “very much an on-off switch type of market,” where AI “sucks all the oxygen out of the room for the rest of the sectors.” Healthcare and consumer staples, which lagged while tech shone last month, posted solid gains on the week.
It is not the first scare. Since ChatGPT arrived in late 2022, Nvidia’s market-value milestones, hyperscaler borrowing, the DeepSeek shock in early 2025, Sam Altman’s admission of a bubble and Michael Burry’s bearish bets have each been read as the top. This year added the Iran war, the South Korean stock market’s meltdown and “circular” funding deals between AI firms. Earnings kept rising and stocks kept setting records. Whether this is another head fake or the real thing is the open question.
Sources
- 'How many canaries have we killed in the coal mine?' — Wall Street debates if the latest AI bubble warnings are another head fake or the real thing | Fortune
- Wall Street Week Ahead: As AI rally wobbles, stock market's spotlight turns to earnings – The Economic Times
- Intercos (BIT:ICOS) On Its Asia Expansion Story And The Case For Undervaluation
Photo: Mike Roberts from New York City, USA / wikimedia (CC BY 2.0)
