Chip Stocks Fall Eight Days Running; AI Lenders Balk

NEW YORK, Oct. 16 — OnOn Wednesday, ASML said the chipmaking machines it plans to build in 2027 and 2028 would not fully meet its customers’ demand. On Thursday, TSMC reported a record quarterly profit and said demand was “still far above” what it could supply. By Friday’s close, chip stocks had fallen for eight sessions running, their longest losing streak since October 2008.

In the same days, the bond market began charging the AI build-out’s heaviest borrowers as doubtful credits. Yields on CoreWeave’s notes topped 15 percent, Oracle’s default insurance reached a record and two banks raised the yield on a $5 billion AI loan to draw buyers.

The Philadelphia Semiconductor Index closed Friday at 11,137.29, down 15.7 percent from its Oct. 6 close, after a 3.83 percent fall in which all 30 of its members declined. Off the PeakThe index set its record close, 14,634.72, on June 22. Friday left it 23.9 percent below that mark, past the 20 percent line many investors use to define a bear market, TECHi calculated. The Nasdaq Composite lost about 4.5 percent on the week, its worst since June.

The question the week leaves is whether the market has begun to doubt the demand for artificial intelligence, or only to reprice the money that pays for it. The answer decides who bears the loss. Doubt about demand would reach every supplier’s order book; dearer money falls first on the companies that borrowed to build, and on their lenders. The suppliers and the lenders gave different answers.

The Suppliers

TSMC’s revenue for the third quarter was $46.72 billion, up 41.2 percent from a year earlier and above the top of its own forecast. Net income rose 68.7 percent, to a record NT$763.06 billion. The company forecast fourth-quarter revenue of $52.3 billion to $54.3 billion and said it now expects revenue to grow about 44 percent this year, in dollars. TSMNYSE406.13▼25.68−5.9%Taiwan Semiconductor · Friday’s session

C.C. Wei, TSMC’s chairman and chief executive, said that in the company’s judgment “the demand actually is still far above our capability today to supply.” Asked about growth in AI accelerators, he said “all I can say right now is the demand is very extremely robust,” and that TSMC “did not see any sign of slowdown.”

Dr. Wei also named a soft spot: “consumer and price-sensitive end market segments” challenged by “rising component prices and more economic uncertainties.” As a result, he said, “we are being prudent in our business planning going into 2027.” TSMC’s American shares fell 1.8 percent on Thursday and 9 percent on the week.

ASML, the Dutch supplier of chipmaking equipment, had set the pattern a day earlier. It reported record quarterly sales of €11.7 billion and said its customers kept raising their equipment forecasts, “driven primarily by their views on the size and duration of AI-related investments.” Some are interested in ordering for 2029 and even 2030. Christophe Fouquet, the chief executive, said ASML now expects “that our supply as currently planned for both 2027 and 2028 will not fully meet the demand of our customers.” The MachinesASML had said it planned to raise its capacity for low-NA EUV and DUV immersion tools by 30 percent in 2027, and was studying a further 30 percent for 2028. It is now looking for ways to go beyond that for 2028.

ASML’s U.S.-listed shares fell 3.9 percent that day, and the semiconductor index fell 4.30 percent, its worst session of the streak. The September inflation report came out the same morning; TECHi said the drop could not be assigned to either.

The Lenders

The strain was plainest in the debt of CoreWeave, an Nvidia-backed company that rents out AI computing power and has taken on more than $51 billion of debt and other obligations to build it. S&P rates it B+, which is junk.

On Wednesday CoreWeave’s shares fell 15.5 percent, and its 9.625 percent notes due 2032 yielded 14.8 percent. By Thursday its 9.75 percent notes due 2031 yielded 15.78 percent, and the spread on its five-year credit-default swaps, contracts that insure against default, had at one point passed 1,140 basis points and last stood near 1,038, CNBC reported. What a Swap CostsThe annualized cost of five-year default protection on $1 million of CoreWeave’s bonds rose from under $40,000 a year earlier to about $100,000, Semafor reported on Thursday.

The shares rose 5.9 percent on Thursday, then fell 11.9 percent on Friday, to $61.39, for a loss of 25.2 percent on the week.

Mike Intrator, CoreWeave’s chief executive, dismissed the moves in a memo obtained by CNBC. “When you are building a new type of technology company there will be periods of time when the market misunderstands and acts irrationally,” he wrote. “We are confident in our backlog which more than supports all of our debt obligations.” Deutsche Bank put that backlog at more than $100 billion, about two-thirds of it with investment-grade customers including Microsoft and Meta.

When you are building a new type of technology company there will be periods of time when the market misunderstands and acts irrationally.

No one doubts the demand for CoreWeave’s services, Gavan Nolan of S&P Global Market Intelligence told CNBC; the question is whether the cash flows will ultimately arrive. A swap spread of 1,000 basis points or more, he said, is generally a sign of credit distress. Evercore ISI’s trading desk said the market was “basically saying ‘no mas’ to AI debt without operating cash flow support.”

Deutsche Bank, which called the dislocation a buying opportunity, saw a wider risk. “The problem is this kind of concern can prove to be a self-fulfilling prophecy, and risks triggering broader issues in other AI-related names,” said Jim Reid, its global head of macro and thematic research.

The strain reached Oracle, which has $160 billion of debt, by Semafor’s count, and an S&P rating of BBB−, one notch above junk, since July. Its shares fell 8.8 percent on Wednesday and 9.3 percent on the week, to $128.23. Its five-year default swaps rose about 10 percent in a week, to 282 basis points, CNBC reported. On Thursday, as Reuters reported record costs for insuring against tech defaults, Oracle’s swaps neared 300 basis points, a record for the company, according to The Motley Fool. A cut to junk, Mr. Reid warned, could force sales by investors allowed to hold only investment-grade debt.

On Thursday, JPMorgan Chase and Goldman Sachs sold a $5 billion leveraged loan for Volta Infrastructure, an AI cloud company founded this year, after raising the yield and sweetening the terms, Bloomberg reported, citing people with knowledge of the matter. It priced at 6.5 percentage points over the benchmark rate and 95 cents on the dollar, against 97 to 98 cents first pitched, pushing the yield past the 11 percent the banks had floated. Most of it, $3.7 billion, is to buy about 36,000 Nvidia graphics processors for a data center in Norway.

The Rate

Inflation added to the pressure. The Bureau of Labor Statistics reported on Wednesday that consumer prices rose 3.7 percent in the year through September, up from 3.4 percent in August, with gasoline accounting for more than half the monthly rise. Brent crude settled Friday just under $110 a barrel, its highest close since May 19.

The Federal Reserve meets Oct. 27–28. The First RiseOn Sept. 16 the Fed voted unanimously to raise its benchmark rate a quarter point, to a range of 3.75 to 4 percent, its first increase since July 2023. After the inflation report, the odds traders put on another quarter-point rise at that meeting jumped from 22.1 percent to 41.5 percent, by the CME FedWatch tool, before easing to 17 percent on Friday; for December they stood at 89 percent.

Yet the 10-year Treasury yield fell during the slide, from 5.27 percent on Oct. 6 to 5.09 percent on Friday, by the Treasury’s daily figures. It touched 5.33 percent in trading after the inflation report, then reversed as the selloff in technology sent investors to safer assets, Investopedia reported. Treasury yields fell while the AI builders’ borrowing costs rose; investors, as FinanceFeeds put it, were “becoming more selective about which borrowers can withstand elevated financing costs.”

Kevin Warsh, the Fed chairman, drew the link himself on Sept. 16, CNN reported: “The so-called hyperscalers are out in the market raising funding, so the competition for capital is real, and it partly explains the increase in yields.” On Monday in Singapore, Lip-Bu Tan, Intel’s chief executive, put it plainly: “If there’s any challenge in the front, it’s capital and the cost of capital, and then the other part is in the long run, people want to see the ROI.”

Not every account put the slide down to money. Investing.com counted hotter inflation and reports that China’s CXMT had made progress on advanced memory chip architecture among the pressures, and TECHi said it found no report that isolated a single cause. Nvidia, the world’s most valuable public company, fell 6.6 percent on the week, to $214.13, and 10.5 percent across the eight sessions. NVDANasdaq204.64▼9.02−4.2%Nvidia · Friday’s session

The next evidence comes from the companies that buy the chips: Meta reports on Oct. 21, and Microsoft on Oct. 28, the second day of the Fed’s meeting. Alphabet reports the same day. CoreWeave’s next results are expected in November. Until then, the market has the suppliers’ word that demand outruns supply, and the lenders’ price for financing it.