TradingKey - Expectations of Federal Reserve rate hikes, rising financing costs for artificial intelligence projects, and intensifying competition in memory chips simultaneously hit global tech stocks this week. As of Thursday, the world's 20 largest AI and semiconductor companies by market capitalization collectively lost over $1 trillion in market value, with the chip sector becoming the epicenter of this sell-off.

In the U.S. market, Nvidia (NVDA) closed down 1.84% on Thursday, AMD (AMD) fell 1.5%, Intel (INTC) dropped about 2.8%, and Dell Technologies (DELL) fell 6.8%. The iShares Semiconductor ETF (SOXX), which tracks the semiconductor sector, fell for an eighth consecutive trading day, losing about 12.7% over the period to log its longest losing streak in 11 years.

The decline was even more pronounced in Asian markets, with South Korea's SK Hynix dropping over 12% on Thursday and Samsung Electronics falling more than 9%; Japan's SoftBank Group fell more than 9%, while semiconductor test equipment maker Advantest dropped nearly 14%. TSMC (TSM) also fell 1.81%, and European semiconductor equipment maker ASML (ASML) was also under pressure.

AI Infrastructure Investment Tested as Inflation and Financing Pressures Mount

US inflation data became the direct trigger for this round of sell-offs. In September, consumer prices rose 3.7% year-over-year, higher than market expectations, reinforcing the likelihood of further rate hikes by the Federal Reserve. Although safe-haven capital subsequently flowed into US Treasuries, driving long-term yields down from their highs, short-term rates and corporate financing costs still face upward pressure.

This impact is particularly pronounced for emerging cloud computing companies that rely on external financing to build data centers. CoreWeave, Nebius, and IREN need to continuously purchase GPUs and servers and expand facility rooms. With part of their debt carrying floating rates or requiring frequent refinancing, rising interest rates not only increase interest expenses but also raise the required rate of return for projects.

James Vrachas, an analyst at investment bank Post Oak Group, pointed out that the valuations of some chip stocks already reflect growth expectations for years to come. Under these circumstances, even if long-term AI demand shows no significant change, as long as the market begins to question whether corporate spending can be sustained, stock prices could experience considerable volatility.

Ross Mayfield, investment strategist at Baird, also believes that high interest rates pose a more direct pressure on AI infrastructure companies reliant on external financing. However, the impact is not limited to small startups. Major cloud service providers also need to reassess the return on investment for data center and chip commitments. If these companies begin adjusting their capital expenditure plans, the entire AI supply chain could be affected.

Broadcom (AVGO) CEO Hock Tan had previously warned that financing capacity could become a major factor constraining the expansion of the AI industry, with an impact potentially even exceeding shortages of chips or power supply. This view further reinforced market concerns over the sustainability of AI infrastructure investment.

Anthropic Revenue Growth Slows, China Storage Competition Intensifies

In addition to macroeconomic interest rate pressures, the latest operating data from AI companies is also weighing on market sentiment.

According to reports, Anthropic disclosed at its pre-IPO investor day on October 14 that its third-quarter revenue reached $16.8 billion, representing a growth of approximately 45% from $11.6 billion in the second quarter. While this increase remains substantial, it is noticeably lower than the quarter-over-quarter growth rate of roughly 145% in the second quarter, leading some investors to reassess the growth trajectory of AI commercialization.

It is worth noting that Anthropic also stated that the company achieved profitability on an adjusted basis and posted positive cash flow. These figures suggest that slowing revenue growth does not necessarily mean that AI demand is shrinking. As a company's revenue base expands, a decline in quarter-over-quarter growth rates may well be a normal phenomenon.

D.A. Davidson analyst Gil Luria believes the market reaction to Anthropic's data reflects investors' rising sensitivity to the AI trade. However, taking the industry as a whole, AI usage and related spending have not necessarily slowed. What requires closer observation now is whether revenue growth can cover continuously rising computing costs, and whether companies can convert technical demand into sustainable cash flow.

Meanwhile, competition in the memory chip sector has sparked new concerns. China's ChangXin Memory Technologies (CXMT) recently announced advancements in memory technology, triggering market debate over whether the global memory industry could face fiercer price competition in the coming years as Chinese manufacturers increase memory density and expand production capacity.

Elon Musk also previously stated on social media that China could produce a massive volume of memory chips by 2028. His remarks further fueled investor discussions regarding long-term supply growth. If global manufacturers continue to expand capacity while AI demand growth fails to keep pace, the memory market may face risks of rising supply and price pressure in the future.

Will the AI Stock Sell-Off Continue? Demand and Earnings Delivery Remain Key

Although market sentiment has noticeably weakened, some analysts do not believe the current pullback proves that AI demand has substantively deteriorated.

Dan Ives, an analyst at Yorkville Ives, pointed out that the current sell-off reflects market concerns over financing costs for AI infrastructure rather than a loss of confidence in computing power demand itself. He believes that signals truly worth watching out for include large cloud computing companies cutting capital expenditures, clients canceling AI infrastructure contracts, and GPU rental prices continuing to decline. These changes reflect whether AI demand is experiencing a structural weakening far better than short-term interest rate fluctuations.

Recent statements from Nvidia CEO Jensen Huang also provided the market with another perspective. Speaking to Bloomberg in Stockholm, Sweden, he stated that Nvidia has no need to provide financial guarantees for AI cloud computing firm CoreWeave (CRWV), adding that CoreWeave's cost of capital is actually declining. The remarks drove a rebound in the stock prices of several emerging cloud computing companies, with CoreWeave rising 5.94% on Thursday and Nebius (NBIS) gaining 1.29%.

Gabelli Funds portfolio manager Hendi Susanto pointed out that many chip and semiconductor equipment companies still possess robust balance sheets and strong free cash flow. For companies where demand continues to outpace supply, short-term market adjustments will not necessarily alter their fundamental outlook.

Overall, the current sell-off in AI stocks is the combined result of inflationary pressures, rising financing costs, elevated valuations, and intensifying industry competition. In the short term, the market may remain highly sensitive to interest rate changes and the operational data of AI companies, while the medium-to-long-term trend will depend on whether AI infrastructure investment can continue to translate into real revenue and profits.

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