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Ted Mortenson, technology strategist at Baird, said that the core of this round of AI-related stock selling is increasingly focused on companies' financing needs and the corresponding cost of that financing.
Speaking to Yahoo Finance senior reporter Brooke DiPalma about chipmakers NVIDIA (NVDA), Advanced Micro Devices (AMD) and Broadcom (AVGO), Mortenson said: "I think Wall Street is tired of the 'NVIDIA bank,' the 'AMD bank' and the 'Broadcom bank' model." He added: "In this cycle, this phenomenon is very rare... institutional investors are not buying into it."
Mortenson noted that the market is facing rising capital costs and that circular financing models are coming under strict scrutiny, a wave of attention that originated from Anthropic's investor communication meeting. Anthropic reportedly told investors that its third-quarter revenue climbed to $16.8 billion. CoreWeave (CRWV) shares fell on Thursday. Mortenson mentioned that the free cash flow levels of CoreWeave, Nebius (NBIS) and Oracle (ORCL) are "probably in the bottom tier" among tech stocks. He said such companies are "highly dependent on external financing going forward," adding: "That is the real problem... right now their free cash flow is weak, capital costs are high, and everything exposed to this kind of risk is being sold off."
To make matters worse, a new report from Gartner argues that by 2030, most next-generation cloud service providers will be "unable to operate independently."
"This is the million-dollar question"
Even chip companies with strong results have been hit. Citing Samsung (005930.KS), Micron (MU) and ASML (ASML) as examples, Mortenson said: "Portfolio managers are selling names with extremely explosive performance data, and these stocks are performing weakly."
So is this decline a buying opportunity? Mortenson said: "This is the million-dollar question."
As of October 6, the Philadelphia Semiconductor Index (SOX) had gained about 87% year to date, which Mortenson described as equivalent to "the returns of a whole high-quality decade"; by Wednesday's close, the index's year-to-date gain had fallen back to 65%. Mortenson believes this pullback has the character of a "healthy correction," but it also means that institutional money previously overweight in the AI infrastructure sector is rotating into other areas.
Rotating where? "Frankly, the money is most likely flowing into software." He also mentioned that some funds are exiting the tech sector entirely, and many portfolio managers "are approaching year-end and intend to lock in their existing gains."
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