Tech (XLK) took a hit this week as funding woes mounted, dragging down major AI trading players and sending the S&P 500 (^GSPC) and Nasdaq (^IXIC) into negative territory for the week.
CoreWeave (CRWV) and its peer Nebius (NBIS) both closed the week down more than 25%. These companies, along with Oracle (ORCL), are “probably at the low end” of tech in terms of free cash flow, Baird technology strategist Ted Mortonson noted on Yahoo Finance last week.
Mortonson highlighted “a higher cost of capital” and “increased oversight of circular finance.”
Nvidia (NVDA) CEO Jensen Huang sought to allay concerns, expressing optimism about CoreWeave. Nvidia’s support is significant, given that the AI chip giant owns around 10% of the neocloud provider.
Others on Wall Street echoed the sentiment.
“I see it’s just another scare, right? We’ve had DeepSeek, we’ve had a price crash, we’ve had the AI death scare,” Moor Insights & Strategy founder and chief analyst Patrick Moorhead told Yahoo Finance.
“As AI commerce numbers are soaring, people are looking for a reason to sell rather than a reason to buy,” he added.
183.47 -5.72 (-3.02%)
Closing: October 16 at 4:00:00 p.m. EDT
183.43 -0.04 (-0.02%)
XLK ^GSPC
Dan Ives, managing director at Wedbush Securities, called the sale “same story, different cast,” noting that CoreWeave exited the second quarter with a revenue backlog of about $104 billion, reflecting customer commitments already in place.
“We see this as the SaaSpocalypse moment for AI infrastructure and we expect the same outcome,” he said, referring to the software sell-off earlier this year sparked by fears of AI-driven disruption.
At the same time, comments from chip equipment maker ASML (ASML) and contract chipmaker Taiwan Semiconductor Manufacturing Co. (TSM) highlighted strong demand for AI.
UBS strategists called the latest bout of volatility a “recalibration of expectations” rather than a fundamental break in the history of AI investing.
“We suggest investors focus on areas where AI spending results in sustainable profit growth and broader adoption by businesses and consumers,” wrote Ulrike Hoffmann-Burchardi, chief investment officer for the Americas and global head of equities at UBS.
Ines Ferre is a senior economics reporter for Yahoo Finance.
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