Last week was likely a painful one for investors holding chip and AI stocks. However, the U.S. stock market has recently staged a rebound, with the NASDAQ index closing up about 1.11%, the S&P 500 rising 0.41%, while the Dow Jones ended slightly down 0.07%.
Those relieved by the green numbers should remain cautious, as the major concern now is whether AI companies heavily funded by loans can manage their interest costs. This question remains unanswered despite the one-day rebound.
AI and semiconductor stocks have started to recover following steep sell-offs last week amid inflation worries and interest rate trends that could pressure technology companies' financing costs.
Nevertheless, the market is watching closely to see if this recovery marks a genuine turnaround or merely a short-term rebound.
Reuters reported that AI-related stocks bounced back on Monday after heavy selling last week, driven by a drop in government bond yields and weaker crude oil prices.
The sell-off was triggered by hot inflation data, prompting the market to raise expectations for interest rate hikes and concerns that highly indebted AI companies will face higher borrowing costs.
The Philadelphia Semiconductor Index (SOX), which tracks the top 30 leading semiconductor companies, fell over 11% in one week, wiping out about $2 trillion in market value over eight consecutive trading days through Friday.
However, on Monday, the SOX index rose approximately 2.4% during trading, poised to halt its longest decline since October 2008. CoreWeave shares gained 2.4% after Goldman Sachs upgraded its rating from "Hold" to "Buy."
Goldman Sachs cited tight processing capacity and a performance advantage over competitors, which should support revenue per megawatt over the next two years, viewing the recent dip as a buying opportunity.
Similarly, Nebius shares rebounded 3.4% after falling over 31% in two weeks, while Applied Digital and IREN rose 8.5% and 5%, respectively.
However, Thomas Hayes, chairman of Great Hill Capital, warned this might be just a “dead cat bounce,” as the bond market remains skeptical about continued financial support for these investments without demanding ever-higher returns.
This aligns with Morgan Stanley's projections that AI investments will reach $1.6 trillion in 2027 and $1.8 trillion in 2028, indicating ongoing growth in capital requirements.
Thai brokerage InnovestX views the current recovery mainly as renewed buying in AI stocks rather than broad market risk appetite. This is evident as the Nasdaq rose 1.11% and the S&P 500 gained 0.41%, while the Dow Jones slipped 0.07%. The semiconductor group leading the rally only just returned to positive territory after eight straight down days.
The U.S. Federal Reserve assesses that AI investment increases economic demand and prices, but well-funded hyperscalers are less impacted by high interest rates than other businesses. Consequently, the burden of fighting inflation falls more on SMEs, consumers, housing, and construction sectors.
Meanwhile, Kevin Hassett noted that September's Consumer Price Index (CPI) data still needs adjustment, consistent with U.S. Treasury yields remaining high—5.14% for 10-year and 5.47% for 30-year bonds. With such high rates, tech stock rebounds remain fragile.
S&P Global estimates that hyperscalers may have more AI-related liabilities than disclosed, hidden in guarantees and long-term contracts, though not yet enough to warrant credit rating downgrades.
Sources: Reuters, InnovestX
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