US inflation report triggers sharp sell-off in major AI stocks

Major AI stocks slumped on Wednesday following a hot US inflation report that pushed up interest rates and fueled investor concern over rising borrowing costs. Among the leading decliners were data center operator CoreWeave, which fell 16%, AI infrastructure provider Nebius, down 11%, cloud computing giant Oracle, down 9%, and AI server seller Dell Technologies, down 11%. These declines wiped out roughly $80 billion in market value.

Market Pressures

The sell-off highlights growing anxiety over tightening financial conditions in a capital-intensive sector. Barclays downgraded Dell and two other enterprise hardware stocks on Wednesday, noting that Dell shares have quadrupled this year as part of a broader AI-fueled investor surge. Selling was especially intense in CoreWeave, which has issued $22 billion of bonds and $26 billion of loans. A CoreWeave bond issued in June yielding 9.625% recently yielded 15%. Kim Forrest, chief investment officer at Bokeh Capital Partners, stated that investors are getting signals that the largest AI companies may not be generating the expected earnings or revenue. Meanwhile, CoreWeave Chief Executive Officer Mike Intrator told employees in an internal memo that the market is acting irrationally and expressed confidence in the company. On Wednesday, US interest rates rose after the inflation report, pushing the 30-year yield to 5.63% before it pulled back in the afternoon.

Investor Outlook

Despite the rout, investors generally remain confident in the sector because its largest players are highly profitable and well managed. The Nasdaq dropped 2% on Wednesday afternoon, with Alphabet and other major hyperscalers mostly down between around 2%, while SpaceX fell 3%. Ross Mayfield, investment strategy analyst at Baird, noted that long rates above 5% pose a problem for marginal borrowers and smaller firms outside the major tech giants.

Context

High inflation and rising interest rates make borrowing and building costlier, which tends to hit less-profitable firms first while leaving cash-rich tech giants in a stronger position. This market reaction shows how sensitive high-growth technology sectors are to broader macroeconomic shifts and Federal Reserve rate expectations.