Stocks struggle to bounce back from AI angst-fueled rout

NEW YORK, Oct 17: The Nasdaq tumbled more than two per cent Friday as a rebound in tech shares sputtered amid angst over AI investments, while most European and Asian exchanges had solid trading sessions.

Recent days have seen heavy selling of AI-related stocks, with investors shifting money to other sectors and into bonds.

Reassuring comments from Nvidia chief Jensen Huang on the financial health of CoreWeave, an AI data center firm, sought to draw investors back into tech stocks ahead of the weekend.

That helped boost sentiment in Asia, where the Seoul and Tokyo indices led gains thanks to strong bounces by the chipmakers SK hynix and Kioxia.

The positive sentiment continued on European stock markets, but fizzled as Wall Street opened.

"There's little love for tech stocks right now, investors are dumping them at a rather undignified pace," said IG analyst Chris Beauchamp. "A recovery last night provided only brief respite, as the selling resumed in the US session," he added.

AI weakness became more pronounced as the session proceeded in New York. So-called "neocloud" companies CoreWeave and Nebius both sank about 12 per cent.

"We're clearly seeing some areas of stress in this very unique part of the AI market," said ArunSundaram of CFRA Research.
Markets had been spooked by concerns about CoreWeave's huge debt pile. Yields on CoreWeave bonds have soared this week, reflecting worries over its future.

The weakness in these stocks "is really driven by financing risk" and the chance that interest rates will rise, which affects their interest payments, according to Sundaram.

All three major US indices fell Friday, with the S&P 500 losing 1.1 percent and the Dow down 0.3 per cent.

US stocks also lost ground as oil prices rose, with both major crude contracts finishing up more than three per cent.

At the IMF and World Bank meetings in Bangkok, Federal Reserve Chair Kevin Warsh said AI was the "most consequential change" to the global economy in his lifetime.

He said the investment boom would drive prices up in the short term, but "there really is, I think, a huge benefit to the global economy, to the US economy over the horizon."

Nonetheless, "the path from where we are to there is likely to be a very bumpy one, bumpy in our understanding of the technology, bumpy because we really don't know what the market structure is going to be of these new technologies," he said.�"AFP