The Nasdaq dropped more than two percent on Friday as a brief recovery in tech shares was overshadowed by ongoing concerns about AI investments. While European and Asian markets experienced solid trading sessions, heavy selling of AI-related stocks continued, prompting investors to reallocate funds into different sectors and bonds.
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Nvidia CEO Jensen Huang's reassurances about CoreWeave's financial health provided a temporary lift to investor sentiment ahead of the weekend, aiding bounces in Asian markets, specifically in Seoul and Tokyo, where chipmakers SK hynix and Kioxia showed strong gains. However, this positivity did not carry over to Wall Street, where tech stocks continued to face significant selling pressure. IG analyst Chris Beauchamp noted, "There's little love for tech stocks right now, investors are dumping them at a rather undignified pace," highlighting that even a prior recovery in the market could not prevent renewed selling in the US session.
Concerns surrounding the AI market intensified, particularly for companies like CoreWeave and Nebius, both of which saw declines of approximately 12 percent. Arun Sundaram of CFRA Research indicated that the ongoing weakness in these stocks is due to financing risks related to CoreWeave's substantial debt. Rising yields on CoreWeave bonds have also signaled increased worries about its future. "The weakness in these stocks is really driven by financing risk and the potential for rising interest rates, impacting their interest payments," Sundaram stated.
All three major US indices experienced losses on Friday; the S&P 500 fell by 1.1 percent, and the Dow decreased by 0.3 percent. Additionally, US equity markets faced downward pressure from rising oil prices, with both major crude contracts increasing by over three percent.
At the IMF and World Bank meetings in Bangkok, Federal Reserve Chair Kevin Warsh described AI as the "most consequential change" to the global economy in his lifetime. He predicted that the investment boom in AI might drive short-term price increases but ultimately promised significant benefits to both the global and US economies over time. However, he cautioned that "the path from where we are to there is likely to be a very bumpy one" due to uncertainties surrounding technology and market structure.
In other market news, the Jakarta stock exchange plummeted more than 11 percent, marking its worst loss since 1998, after MSCI announced that Indonesia's emerging-market status was no longer appropriate due to transparency concerns.