Concerns over AI funding are weighing heavily on chip stocks; the global tech sector has already lost over a trillion dollars this week.

Author: Long Yue, Wall Street Insights

Interest rate hike expectations, rising AI financing costs, and a deteriorating competitive landscape have all contributed to a massive sell-off in global tech stocks this week.

The sell-off in global tech stocks continued on Thursday. In the US, Nvidia closed down 1.84%, AMD down 1.5%, Intel down about 2.8%, and Dell Technologies plunged 6.8%. Asian markets saw even steeper declines, with SK Hynix plummeting over 10%, Samsung Electronics down 8.73%, and SoftBank Group down 7.9%.

According to CNBC, as of Thursday,the 20 largest AI and semiconductor stocks globally had collectively lost over $1 trillion in market capitalization. The iShares Semiconductor ETF (SOXX), which tracks the chip sector, recorded its eighth consecutive day of decline on Thursday, with a cumulative drop of approximately 12.7%. According to Dow Jones Market Data, this is the ETF's longest losing streak in 11 years.

Nvidia CEO Jensen Huang told Bloomberg at an event in Stockholm that he believes Nvidia does not need to endorse CoreWeave, adding that "their cost of capital is actually decreasing." This statement spurred a rebound in neocloud stocks, with CoreWeave closing up 5.94% and Nebius up 1.29%.

Multiple negative factors combined, leading to a progressively stronger sell-off logic.

This round of sell-off was not triggered by a single event, but rather by multiple negative factors reinforcing each other within the same time window.

Inflation data was the trigger.The U.S. September Consumer Price Index (CPI), released Wednesday, came in higher than expected, prompting markets to increase bets on further interest rate hikes by the Federal Reserve. The Nasdaq Composite Index closed down 1.88% at 26,692.87 points on Wednesday, while the S&P 500 Index fell 1.11% to 7,718.94 points.

Anthropic's data further dampened market sentiment.According to the Financial Times, AI startup Anthropic disclosed at a private investor conference on Wednesday that its third-quarter revenue reached $16.8 billion, a quarter-over-quarter increase of approximately 50%—but this growth rate is far lower than the approximately 145% quarter-over-quarter increase in the second quarter. DA Davidson analyst Gil Luria wrote in a client report, "The market seems to have interpreted Anthropic's update as a negative signal, and given the market's inherent sensitivity to AI trading, this reaction is understandable."

Luria himself holds a more neutral view. He points out that Anthropic achieved positive cash flow in the third quarter, indicating that the company and OpenAI "are not inherently unprofitable business models." He also writes that from a broader AI industry perspective, "overall AI usage (and AI spending) may not be slowing down."

Competition from China is also intensifying.Changxin Memory announced last weekend a breakthrough in its new architecture, enabling the storage of more data in a smaller space. Elon Musk subsequently posted on the X platform that China will produce "mass quantities of memory chips" by 2028.

Meanwhile, the CEOs of both Broadcom and Intel warned on Monday that funding issues could be a major obstacle to the expansion of AI, with Broadcom CEO Hock Tan saying the challenge could even surpass chip or power shortages.

Rising interest rates directly impact the return on investment in AI infrastructure.

The impact of a high-interest-rate environment on AI infrastructure development is one of the core reasons behind this round of sell-offs.

James Vrachas, managing director of investment bank Post Oak Group, told MarketWatch that chip stocks have already "priced in a lot of future growth expectations," and the share prices themselves reflect those expectations. In this context, "even a slight shift in sentiment or questioning of spending can have a significant impact on share prices." He said, "Believing in the long-term potential of AI and believing that every company that benefits from that growth is reasonably priced are two different things."

Baird investment strategist Ross Mayfield told MarketWatch that rising Treasury yields are putting pressure on the chip sector, especially high-growth stocks and companies that are "more aggressive at the other end of the AI risk spectrum" and more reliant on external financing. He said that CPI data may increase the urgency for the Federal Reserve to raise interest rates, "which puts tremendous pressure on short-term interest rates, and is particularly impactful on borrowers with weaker financial foundations or those holding floating-rate debt linked to short-term interest rates."

Mayfield also pointed out that even hyperscalers are not entirely immune to interest rates. "Even the largest, most cash-rich companies have to reassess the ROI of these projects," he said. "And much of the market momentum is built on hyperscalers' spending on hardware and data center infrastructure, which casts a shadow over the entire supply chain."

Asian and European markets experienced even steeper declines, with South Korean and Japanese stock markets bearing the brunt.

The sell-off sentiment in US stocks quickly spread to Asian and European markets, with declines generally exceeding those in the US.

On Thursday, South Korean stocks plunged more than 10%, Samsung Electronics fell 8.73%, LG Innotek dropped 8.95%, Seoul Semiconductor declined 9.28%, and Samsung SDI dropped 6.26%. The Korea Composite Stock Price Index (KOSPI) approached its lowest closing level since April.

The Japanese market also suffered heavy losses. SoftBank Group fell 7.9%, semiconductor testing equipment maker Advantest plummeted nearly 14%, chip manufacturing equipment supplier Tokyo Electron fell 6.45%, and Renesas Electronics fell 8%. TSMC fell 1.81%.

In Europe, Dutch semiconductor equipment giant ASML saw a slight decline, Infineon fell 5%, and ASM International dropped 7%.

Analysts: Demand signals are the real alarm bells

Despite the low market sentiment, some analysts believe that this round of sell-off has not yet touched on the substantial deterioration in AI demand.

In a report, Yorkville Ives technology analyst Dan Ives wrote that this sell-off reflects market concerns about financing costs, rather than doubts about the demand for AI computing power. "The rise in U.S. Treasury yields above 5% has indeed pushed up the financing costs of these infrastructure projects, and it's reasonable for investors to focus on balance sheets and contract structures, but interest rates are a financing issue, not a demand issue."

Ives believes the current period presents a buying opportunity, noting that the AI infrastructure boom is still in its early stages. He explicitly lists the truly alarming signals: "What will truly change our judgment is demand signals, not interest rate signals"—including hyperscale cloud providers cutting capital expenditure plans, contract cancellations, or falling GPU leasing prices.

Hendi Susanto, portfolio manager at Gabelli Funds, told MarketWatch that many chip and semiconductor equipment companies "have strong balance sheets and ample free cash flow," and he expects most of them to "finish the year strongly," especially those where demand still exceeds supply. He also noted that the upcoming earnings season for tech companies will reveal "the extent to which investors have priced in inflation concerns."

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