Chip stocks suffered a deepening sell-off Wednesday after hotter-than-expected inflation data raised fears of further Federal Reserve rate hikes and higher borrowing costs.
The prospect of more rate hikes cast a shadow over the AI trade, with investors growing increasingly concerned about the rising cost of capital for tech-heavy infrastructure spending.
Long-dated bond yields, closely tied to borrowing costs, moved higher before trimming some gains following the release of September’s inflation figures.
Technology stocks, tracked by the XLK ETF, were already trading on shaky ground amid elevated yields, rising debt levels, and lingering concerns about an AI bubble.
Chip giant Nvidia (NASDAQ: NVDA) closed the session down more than 3%, leading the broader semiconductor sector lower according to Yahoo Finance’s AlphaSpace heatmap.
Nvidia shares extended those losses, falling nearly 2% in pre-market trading on Thursday, suggesting continued pressure heading into the next session.
The chip sector’s troubles began earlier in the week, as memory makers Marvell Technology (NASDAQ: MRVL) and SK Hynix (SKHY) dropped amid growing worries over intensifying Chinese competition in the semiconductor space.
Wednesday’s inflation data added a fresh layer of anxiety to markets already dealing with structural concerns about whether AI spending can be sustained at current levels.
Cloud computing provider CoreWeave (NASDAQ: CRWV) was among the hardest hit, with its stock plunging more than 16% after a chart showing the neocloud provider’s bond yields circulated widely on social media.
The sharp sell-off in CoreWeave stock brought renewed scrutiny to the company’s debt-heavy balance sheet and whether it can scale operations quickly enough to manage its growing interest expense.
Any slowdown in AI infrastructure spending would pose a significant threat to chipmakers, which have been the primary beneficiaries as hyperscalers race to build out data centers globally.
ASML (NASDAQ: ASML), the maker of advanced chip-making machinery, compounded sector worries Wednesday after warning it may not be able to fully meet customer demand in 2027.
ASML shares fell nearly 4% on the back of that guidance, adding further weight to concerns that supply constraints could disrupt the pace of the AI buildout.
Investors turned their attention to Taiwan Semiconductor Manufacturing Company (NYSE: TSM), which was scheduled to report quarterly results Thursday, with analysts expecting profits to rise 60% year over year.
The TSMC results were widely expected to provide a key read on the overall health of AI-driven chip demand, with particular focus on foundry capacity and forward guidance.
