The latest US inflation reading came in above market expectations, fueling worries about rising interest rates and higher financing costs for the artificial intelligence (AI) sector, triggering a selloff in US AI-related stocks on Wednesday.
That wave of selling carried into Thursday, with stock markets in China, Japan and South Korea all moving lower, while Nasdaq futures fell more than 1% in pre-market trading after the index closed down 1.88% on Wednesday.
US chip stocks broadly declined in Thursday pre-market trading. As of press time, SK Hynix (SKHY.US) dropped more than 6%, SanDisk (SNDK.US) and Western Digital (WDC.US) fell nearly 4%, Micron Technology (MU.US) and Seagate Technology (STX.US) slid more than 3%, Intel (INTC.US) and AMD (AMD.US) lost nearly 3%, and Qualcomm (QCOM.US), NVIDIA (NVDA.US) and Broadcom (AVGO.US) each dropped more than 1%.
Optical communications stocks were hit as well: AXT Inc (AXT.US) fell more than 6%, while Marvell Technology (MRVL.US), Astera Labs (ALAB.US), Credo Technology (CRDO.US), Coherent (COHR.US), Corning (GLW.US) and Lumentum (LITE.US) all declined more than 3%.
In addition, AI infrastructure names that were hit hard on Wednesday extended their losses in pre-market trading: AI cloud computing company CoreWeave (CRWV.US) dropped nearly 6%, AI infrastructure services provider Nebius (NBIS.US) fell more than 3%, Oracle (ORCL.US) lost nearly 2%, and Dell Technologies (DELL.US) slid nearly 4%.
These stocks closed down 15.46%, 10.08%, 8.83% and 11.27%, respectively, on Wednesday.
Following the release of September CPI, investors will focus on US September PPI data due Thursday for the latest clues on factory-level inflation trends. If that reading also exceeds expectations like Wednesday's CPI, it could further heighten concerns about inflation and rising interest rates, potentially delivering another blow to already weak AI-related stocks.
Inflation Above Expectations Lifts Rate Hike Bets, Deepening Financing Cost Concerns
The selling pressure stemmed largely from a rebound in US September inflation that reinforced expectations the Federal Reserve will keep raising rates.
Data released by the US Labor Department on October 14 showed that, driven by higher energy and food costs, the September consumer price index (CPI) rose 0.6% month over month, the largest increase since April, while the year-over-year rate climbed to 3.7%, above August's 3.4% and economists' expectation of 3.6%.
Excluding volatile food and energy prices, core CPI rose 0.3% month over month, unchanged from August but above the market expectation of 0.2%; the year-over-year rate rose to 2.6% from 2.4% in August, exceeding the expected 2.5%.
Specifically, energy prices were the main force pushing overall inflation higher. The energy price index rose 5.2% month over month in September, with the gasoline price index up 9.1% month over month, contributing more than half of the month's CPI increase.
Ongoing conflict in the Middle East continued to drive fuel costs higher. Energy prices have risen 20.4% so far this year, and higher fuel costs further pushed up airfare, with ticket prices up 1.2% month over month in September and 22.4% year to date.
Notably, price increases have spread beyond energy into a broader range of categories. Analysts pointed out that prices for entertainment, used cars and trucks, education, airfare, healthcare and apparel all rose, with some increases stemming from tariffs and energy, while others suggest inflation is more sticky.
Olumide Sonola, head of US economic research at Fitch Ratings, said the latest inflation data "flashes a red light" for the Fed, and the pass-through of price increases into broader services could raise the risk of sustained inflation.
A deeper issue is that AI infrastructure construction itself is becoming a driver of inflation. A boom in data center construction is pushing up prices for semiconductors and other goods and transmitting through channels such as construction labor costs into the broader economy.
The hotter-than-expected inflation data quickly reshaped market expectations for the Fed's rate path. According to the CME "FedWatch" tool, after the CPI release traders' bets on a 25 basis point rate hike in October jumped from about 18% before the data to about 70% as of press time; the probability of a December hike briefly approached 90% and, though it has since cooled, remains above 60%.
The latest decline in AI-related stocks reflects investors' concerns about the AI industry's massive capital investment and rising financing costs. The question the market is watching is whether, as the AI industry continues to expand data center construction, huge computing investment can ultimately generate enough revenue and cash flow to cover rising construction and financing costs.
Moreover, as the AI data center construction boom continues, related companies' share prices had already risen sharply, and their high valuations make them more vulnerable to shifts in market expectations.
Jefferies economists Mohit Kumar said: "If AI infrastructure building slows, it means US economic growth expectations will cool significantly."
He added, however: "We expect earnings season will prove corporate profits and demand remain strong," but also noted that Jefferies plans to take some profits and reduce positions ahead of the US midterm elections.
Anthropic's Q3 Financials 'Not Good Enough' Trigger AI Stock Selloff
Another reason for the AI stock selloff was Anthropic's latest results, which were described as "good but not good enough."
According to reports, Anthropic disclosed at a closed-door pre-IPO investor day in San Francisco that its third-quarter revenue reached $16.8 billion, up nearly 50% from $11.5 billion in the second quarter, and it achieved "adjusted profitability" and positive cash flow.
Yet the market reaction was far from jubilant. Market research firm P Equity Research said bluntly: "Anthropic's numbers are good, but not good enough." Investment analyst Geiger Capital was even more direct: "Not good enough. It's over."
The hidden concern behind the numbers is a sharp slowdown in growth. According to ZeroHedge estimates, Anthropic's annualized revenue run rate had reached $65 billion by the end of July, while the monthly growth rate implied by the third-quarter data has plunged from a prior compound monthly growth rate of about 33% to 3.4% to 6.6%.
If that trend continues, the company's annualized revenue at year-end would be about $89 billion, leaving a gap of roughly $10 billion from the widely expected year-end target of "more than $100 billion."
The reality that Anthropic's revenue growth has plummeted from 33% monthly to single digits has undoubtedly dealt a blow to the high-growth narrative the AI industry relies on.
In addition, although TSMC (TSM.US) reported third-quarter results that sent a key signal that computing demand remains strong and said fourth-quarter demand is expected to stay robust, its statement about remaining cautious in planning its 2027 business due to macroeconomic uncertainty also weighed on market sentiment.
Capital Constraints on AI Investment Come to the Surface
Beyond macro-level rate pressure, warnings about financing constraints at the industry level became another important catalyst for this round of selling.
Broadcom CEO Hock Tan earlier this week likened some investors chasing the AI boom to "gamblers," saying bluntly that many AI investors do not understand the technology they are investing in yet hold extremely high expectations.
He further warned that capital — not chip supply — will be the biggest constraint on AI development.
Hock Tan also questioned the actual benefits of corporate spending on AI, noting that AI model developers must find customers who can generate returns on investment through adopting AI technology, rather than relying on users who are still in trial phases and constantly "wasting money" on tokens.
He used a vivid analogy to illustrate the problem: "It's like when you were a kid and went to an arcade and your parents gave you $10 worth of tokens, you spent them all in 10 minutes and learned nothing. That's exactly what's happening in the corporate world today."
His remarks sparked widespread resonance and debate in the market. Michael Burry, the famous investor whose story inspired the film "The Big Short," reposted Hock Tan's comments on social platform X, specifically highlighting the issue that companies spend money using AI tokens without necessarily creating real value.
Broadcom's warning has been borne out in reality. AI cloud computing provider CoreWeave's unsecured bonds maturing in 2032 fell to less than 80 cents on the dollar on Wednesday, with yields exceeding 15%; its credit default swaps rose to a record high, and market pricing indicates a probability of more than 50% that the company will default within the next five years.
D.A. Davidson analysts previously called CoreWeave the "subprime tranche" of AI and warned that if the AI financing boom fades, the company may be unable to repay its high debt.
Daniel O'Regan, executive director of equity trading at Mizuho Securities, noted that in recent weeks investors have become "increasingly unwilling to fund AI-related spending at any cost."
AI capital expenditure has exceeded companies' ability to generate free cash flow, meaning companies must seek external financing to buy the hardware they need, and when external financing becomes more difficult, spending on chips and other AI infrastructure could be materially affected.
A JPMorgan analyst team led by Nikolaos Panigirtzoglou wrote in an October 14 report that although the share price move resembles the late-July pullback, the current backdrop for AI infrastructure stocks is less favorable.
Panigirtzoglou said the reason is that "although overall equity funds still have continued inflows, retail investors have so far lacked 'buy-the-dip' behavior, buyback flows have fallen off a cliff, the short base is insufficient, and leveraged equity ETF assets under management are higher."
"Despite the recent pullback, cyclicals do not appear oversold from a positioning or flow perspective."
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