US chip stocks fall as inflation and AI spending debt worries grow

In short: US chip and tech stocks fell as new inflation data and worries about debt-funded AI spending made investors more cautious.

What's going on

US chip stocks dropped sharply on Wednesday. The S&P 500 ended the day down 1.1 per cent, and the Nasdaq 100, which is heavy on tech companies, fell 2 per cent. The Philadelphia Semiconductor Index, a basket of major chip makers, fell 4.3 per cent and is down almost 12 per cent since last Tuesday.

Some well-known tech names also slid. Nvidia and Meta fell about 3.2 per cent, Oracle fell 8.8 per cent, and chip company Marvell fell 8.7 per cent.

One driver was inflation, which came in hotter than expected at 3.7 per cent in September, helped by rising fuel prices linked to the Iran war. Higher inflation can lead to higher interest rates, and higher rates often hurt fast-growing companies because more of their value depends on profits expected far in the future (like valuing a tree mostly for fruit you hope it will grow years from now).

Investors are also debating whether the current rush to spend on AI will pay off. Many tech firms are borrowing money to build data centres (large buildings full of computers) and buy the chips needed to run AI systems. Some market watchers are questioning whether lenders and investors will keep funding that spending at the same pace.

What to watch

As stocks fell, some investors moved money into US Treasury bonds, which are often treated as a safer place to park cash during market swings. The next key questions are whether inflation stays high, whether interest rates rise further, and whether AI-focused companies can show that their large building plans will turn into steady profits.

Source: Financial Times