Chip stocks slide eighth day as AI debt fears mount

The iShares Semiconductor ETF ↗ 1.46% fell for an eighth straight session on Thursday, October 15. That is its longest losing streak since September 2015. Investors are increasingly worried that rising borrowing costs and heavy debt loads could slow spending on artificial intelligence infrastructure, Seeking Alpha reported via TradingView. The fund closed down 12.6% from its October 2 level, although it is still up about 71% for the year.tradingview.com

The selling peaked on Wednesday, October 14. The Nasdaq Composite fell 1.9% and the S&P 500 lost about 1.1% after a hot inflation report, according to Yahoo Finance UK. On Thursday the Nasdaq recovered its early losses and closed up 0.08%. The Dow Jones Industrial Average rose more than 1% as investors moved out of tech, Reuters reported. The Philadelphia Semiconductor Index PHLX Semiconductor Index ↗ 1.70% still fell for a seventh day.axios.com+1

Capital as the bottleneck

Broadcom CEO Hock Tan added to the worries on Monday, October 12, at a conference in Singapore. "[What] I think might be the biggest constraint is capital," he said, according to CNBC Comcast Corporation ↘ 1.74%. He said financing could become a bigger obstacle than shortages of chips, memory or power. Intel CEO Lip-Bu Tan spoke on the same panel and pointed to "capital and the cost of capital," adding that "people want to see the ROI." Hock Tan also compared some AI investing to "casino gambling," Reuters reported.cnbc.com+1

"Tech investors are getting uncomfortable with the amount of debt being used to fund the AI build-out," said Dan Coatsworth of AJ Bell, Yahoo Finance UK reported. Reports that Anthropic's third-quarter revenue growth slowed also weighed on chipmakers, according to Barchart via Yahoo Finance.finance.yahoo.com+1

Strain in credit markets

The pressure has hit neocloud providers hardest. These are companies that rent out GPU computing capacity. CoreWeave ↘ 1.59% shares fell more than 15% on Wednesday, and yields on its 2031 bonds rose above 16%, Seeking Alpha reported. CoreWeave rebounded on Thursday after Nvidia ↗ 1.72% CEO Jensen Huang spoke up for the company, Axios reported.axios.com+1

According to Axios, about a third of AI capital spending now comes from debt. Global AI-related debt issuance dropped to $23 billion in September from $113 billion in June, and JPMorgan ↘ 0.30% is tightening credit. Roughly $18 billion in loans for an Oracle ↘ 0.48% data center campus have moved into stressed territory, Axios reported.axios.com

A global retreat

The sell-off has spread beyond the US. South Korea's Kospi fell more than 7%, and China's Shanghai Composite dropped to a 14-month low, Barchart reported. The biggest chip and memory stocks lost more than $1 trillion in market value this week, according to Yahoo Finance.uk.finance.yahoo.com+1

Gartner ↗ 0.56% research cited by Axios points to a gap between spending and revenue. AI providers are expected to spend $7 trillion on infrastructure through 2030 but earn no more than $3.6 trillion in related revenue over the same period.axios.com