Tech Weekly: Chip Stocks Sink on Hot Inflation Data, Debt Worries

This week's tech sector performance

Tech stocks had a rough week on the back of hotter-than-expected US inflation data and growing doubts about companies borrowing heavily to build out the artificial intelligence (AI) ecosystem.

The NYSE Composite (INDEXNYSEGIS:NYA) and Nasdaq-100 (INDEXNASDAQ:NDX) fell further than the S&P 500 (INDEXSP:.INX), and chip stocks took the worst of it, falling every day through Thursday (October 15).

The week started quietly for the major indexes. Still, chip stocks slid on Monday (October 12) after China's CXMT (SHA:688825) said it plans to release a more compact type of server memory by year end, weighing on Micron Technology (NASDAQ:MU), Samsung Electronics (KRX:005930) and SK Hynix (KRX:000660,OTCPL:HXSCL).

On Tuesday (October 13), investors turned to the first big bank earnings of the season, which were mixed.

Then, on Wednesday (October 14), tech stocks saw their worst decline of the week after September US consumer price index came in hotter than expected, pushing treasury yields higher and raising the odds that the US Federal Reserve will raise interest rates at its next meeting, scheduled for October 27 to 28.

Losses were heaviest in tech and in AI companies that rely on borrowed money, as the threat of rate increases added to worries about debt that will need to be refinanced at higher costs.

CoreWeave (NASDAQ:CRWV) had its biggest single-day drop since February as its bond yields climbed toward 15 percent, and Oracle (NYSE:ORCL), Dell Technologies (NYSE:DELL) and Nebius Group (NASDAQ:NBIS) fell with it. By the day's close, bond yields had reversed as investors moved into safer assets.

On Thursday, a much hotter-than-expected US producer price report added to inflation worries, but bond yields fell as investors kept moving money into safer stocks. The Dow Jones Industrial Average (INDEXDJX:.DJI) rose, while the Nasdaq Composite ended about flat. Taiwan Semiconductor Manufacturing Company (TSMC) (NYSE:TSM) reported strong Q3 results and forecast higher sales for the current quarter, but that wasn't enough to stop the slide in chip stocks. CoreWeave rebounded after NVIDIA (NASDAQ:NVDA) CEO Jensen Huang said its financial strength is improving.

Stock futures pointed slightly higher on Friday (October 16) and Tesla (NASDAQ:TSLA) shares rose after the company's Roadster reveal; however, the Nasdaq slipped at the open, and by midday the selling in chip and AI stocks had picked up again, with Micron and CoreWeave among the decliners.

The Nasdaq Composite lost 2.15 percent to close at 26,140.03, down 4.48 percent since last Friday.

Top tech news of the week

AI spending worries hit debt-heavy AI stocks

• Broadcom (NASDAQ:AVGO) CEO Hock Tan, addressing investors with Intel (NASDAQ:INTC) CEO Lip-Bu Tan in Singapore, said the cost of money may be AI growth's biggest limit. Tan also said many AI investors act “almost like they are in a casino” and that most companies “cannot find any return on investment."

• D.A. Davidson's Gil Luria called companies that rent out AI computing power “the subprime tranche of the AI trade,” and said in a worst-case scenario CoreWeave’s shares could go to zero.

• Gartner expects about US$7 trillion in AI data center spending through 2030 against no more than US$3.6 trillion in related revenue. Over US$3.5 trillion of that spending could be written down, and that more than 80 percent of companies that rent out AI computing power won’t stay independent by 2030.

• Tencent Holding (OTCPL:TCEHF,HKEX:0700) raised about US$5.7 billion in bonds on Tuesday, while global AI-related debt sales in September were nearly half of August’s, according to the Financial Times, citing Morgan Stanley (NYSE:MS) data. Morgan Stanley CEO Ted Pick said on the bank’s earnings call that there will be times of “overbuilding,” but that AI spending is “still relatively early."

Chips and memory

• ASML Holding (NASDAQ:ASML) said its planned supply for 2027 and 2028 won't fully meet customer demand, noting that it is looking at adding more capacity.

• GlobalFoundries (NASDAQ:GFS) is planning two new chip plants in Malta, New York, backed by up to US$21 billion from Japan under a US-Japan investment deal. The US Department of Commerce will get about a 4 percent stake in the company.

• Applied Materials (NASDAQ:AMAT) unveiled a Silicon Valley research center where spending will grow to about US$5 billion over time; TSMC, Intel, SK Hynix, Micron and Samsung are partners.

• Lumentum (NASDAQ:LITE) CEO Michael Hurlston told Bloomberg TV that the company's optical parts for AI data centers are “effectively sold out through early 2029.”

• Global smartphone shipments fell 22 percent in the third quarter, the largest drop on record, per IDC, which blames memory costs that have more than tripled in a year.

Big tech and AI companies

• Meta Platforms (NASDAQ:META) launched Muse Wonder and Muse Wonder Full, then released Muse Spark Open, a model others can download and run.

• Alphabet (NASDAQ:GOOGL) released Gemini 4 Argon to paying Gemini app subscribers.

• Microsoft (NASDAQ:MSFT) revealed Maia 300, the third generation of its AI chip, made on TSMC’s 2 nanometer class process. Microsoft plans to make Maia “the primary inference system for Microsoft products and services,” with deployments starting in 2027. Microsoft's share price closed at a record level for the first time in about a year on Tuesday.

• Apple (NASDAQ:AAPL) unveiled HomeView, a US$299 home screen with a 7 inch display that goes on sale November 13, along with a new Apple TV 4K and HomePod mini. Separately, in Apple’s trade secrets lawsuit against OpenAI, OpenAI said a former employee shared its product plans with Apple’s leadership. According to Apple, there is no evidence of that.

• NVIDIA's Huang said in Paris that the company will announce about US$2 billion in new European AI deals within a week. Separately, the Financial Times reported NVIDIA is in early talks to invest more in, or buy, Reflection AI, and the Wall Street Journal reported that Amazon (NASDAQ:AMZN) is in talks to buy Decart for about US$7 billion. Neither company has confirmed a deal.

• Anthropic, which plans to go public, told investors that its third quarter revenue reached US$16.8 billion.

• The Walt Disney Company (NYSE:DIS) made the opening US$20 million bid to license some of Character.AI's technology after the chatbot company filed for bankruptcy on Monday.

• Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B) agreed to buy US$330 million in new Bending Spoons (NASDAQ:BSP) shares at US$33 each, raising its stake to 4 percent. Bending Spoons (NASDAQ:BSP) shares jumped about 41 percent on the news.

• IonQ (NASDAQ:IONQ) is buying cybersecurity firm Elisity for up to US$1.3 billion in stock.

3 tech stocks moving markets this week

This week's top tech stock movers, according to TradingView data, were:

1. Keurig Dr. Pepper (NASDAQ:KDP)

Keurig Dr. Pepper led with a gain of 11.07 percent.

2. Moderna (NASDAQ:MRNA)

Strategy followed with a weekly gain of 9.55 percent this week.

3. IDEXX Laboratories (NASDAQ:IDXX)

IDEXX Laboratories saw a gain of 9.09 percent.

Tech ETF performance

Tech exchange-traded funds (ETFs) track baskets of major tech stocks, meaning their performance helps investors gauge the overall performance of the niches they cover.

This week, the iShares Semiconductor ETF (NASDAQ:SOXX) has lost 13.59 percent over the last five days, according to TradingView data, while the Invesco PHLX Semiconductor ETF (NASDAQ:SOXQ) lost 13.07 percent.

The VanEck Semiconductor ETF (NASDAQ:SMH) lost 12.25 percent.

Tech news to watch next week

With earnings season shifting toward the technology sector next week, investors will gain clearer insight into AI expenditures, returns on investment and remaining cash reserves.

Tesla, Texas Instruments (NASDAQ:TXN), IBM (NYSE:IBM) and Meta Platforms will report third quarter results after the market closes on October 21. NVIDIA's GTC event runs in Berlin from October 20 to 22.