By Britney Nguyen

Reported details about Anthropic's financial progress are adding to concerns about the health of the AI ecosystem

Nvidia's stock was down Thursday.

A prominent exchange-traded fund tracking the chip sector fell for the eighth consecutive day as concerns continued to mount about the state of artificial-intelligence spending.

Wall Street's latest worries came from AI startup Anthropic's quarterly revenue update, issued in a private meeting with investors Wednesday, which reportedly illustrated a slowdown in growth. The Claude chatbot developer reported that its revenue was up to $16.8 billion in the September quarter, according to the Financial Times. Although that demonstrated sequential growth of almost 50%, Anthropic had seen revenue grow almost 145% sequentially in the second quarter.

"The market appears to be reading the Anthropic update as negative, which is understandable considering how on-edge the market has been anyway about the AI trade," D.A. Davidson analyst Gil Luria said in a note to clients.

From Luria's perspective, the update was "more mixed." Encouragingly, Anthropic reported positive cash flow in the third quarter, according to the Financial Times, and the analyst said that should signal to investors that the company and OpenAI are not "inherently unprofitable businesses that could never be profitable."

Luria said he sees a healthy backdrop for the AI industry. The third quarter saw cheaper open-weight models gain steam, and OpenAI "caught up" with its own advanced model. Looking at the broader AI universe beyond just Anthropic, "overall AI usage (and likely AI spend) may not have decelerated," he wrote.

But that sentiment wasn't enough to stem the bleeding in prominent chip stocks like Intel (INTC), which ended Thursday down 2.8%; Nvidia (NVDA), which finished down 1.8%; and Advanced Micro Devices (AMD), which was down 1.5% at the close. Shares of Micron Technology (MU) pared losses to finish up 1.9% Thursday, while Sandisk's stock (SNDK) also recovered from deeper losses to be down fractionally.

The chip sector in general has been under pressure for days, with the iShares Semiconductor ETF SOXX logging its eighth straight session of declines and losing about 12.7% over that period. The ETF recorded its longest losing streak since an eight-session stretch that took place 11 years ago, according to Dow Jones Market Data.

James Vrachas, an executive director at investment bank Post Oak Group, said chip stocks have "priced in an enormous amount of future growth," meaning share prices already reflect those expectations. Against that backdrop, a slight shift in sentiment or questions about spending can significantly impact shares, he told MarketWatch.

Vrachas said investors should focus on earnings forecasts, profitability, cash flow and commitments to AI spending.

"There's a difference between believing in the long-term potential of AI and believing every company exposed to that growth is appropriately valued," he said in emailed comments.

More broadly, Treasury yields have been weighing on the chip sector, especially higher-growth stocks and those "on the risky side of the AI spectrum" that have been more reliant on outside financing, Ross Mayfield, an investment strategist at Baird, told MarketWatch.

The consumer-price index report this week also reflected faster-than-expected inflation growth in September, which may increase the Federal Reserve's urgency for an interest-rate hike, Mayfield noted.

"That's creating a lot of pressure at the short end of the curve, which really hits borrowers that are on shakier ground or have adjustable-rate debt that's tied to short-term interest rates," he said.

Mayfield pointed to higher yields pushing up the cost of capital and the stakes for returns on investment for companies building AI data centers. Not only would it hurt smaller companies, but major cloud-services providers, or hyperscalers, are not entirely insensitive to rates either, he said.

"Even the biggest, most cash-rich companies have to re-evaluate the ROI on these projects," Mayfield said. And given much of the momentum in the market has been built off of the hyperscalers' spending on hardware and other data-center infrastructure, "it kind of casts a cloud over the whole supply chain," he added.

Hendi Susanto, a portfolio manager at Gabelli Funds, said many chip and semiconductor-equipment companies continue to "have strong balance sheets and solid free cash flow." Therefore, he expects most of them "to finish the year strong" - especially companies that report demand that is still outstripping supply.

Upcoming tech earnings reports will reflect "how much investors factor in inflation concerns," Susanto told MarketWatch in emailed comments.

-Britney Nguyen

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(END) Dow Jones Newswires

10-15-26 1723ET