US Stock Market Recovers – Investors' Attention Shifts from the AI Sector to Corporate Earnings

The US stock market rose on Monday, partially recovering after last week's sharp decline. Sell-offs in AI-related stocks last week produced Wall Street's worst weekly performance since the end of June. Investors' attention has now shifted to a new wave of corporate quarterly earnings reports, which begins this week.

As of 14:45 New York time, the S&P 500 index rose 0.6% to 7,704.96 points. The tech-focused Nasdaq Composite gained 1.3% to 26,471.76 points, while the Dow Jones Industrial Average rose 0.1% to 52,060.24 points.

King Lip, chief strategist at BakerAvenue Wealth Management, noted that the sharp volatility in AI-related stocks reflects a market situation in which long-term optimism about technology is increasingly colliding with questions about its short-term economic benefits.

In his assessment, the artificial intelligence sector is moving from a stage of promises to a stage of evaluating real results. Investors are increasingly less willing to value every company the same way simply because of its connection to AI. Attention is now shifting toward revenue growth, profitability, and return on investment.

Sell-offs in the AI sector worsened investor sentiment

Last week, pressure intensified particularly on memory chip manufacturers and semiconductor companies. Market concern was triggered by reports about technological progress at China's ChangXin Memory Technologies, which raised fears of increased competition.

Over the course of the week, shares of US-based Micron Technology fell 14.6%, Samsung Electronics dropped 17.8%, and SK Hynix declined 24.3%.

The wave of sell-offs then spread to so-called neocloud companies as well. These companies are providers of specialized cloud computing services, renting out GPU capacity for training and running AI models.

According to a Gartner report, by 2030 as much as 80% of such providers could cease operating independently. This forecast has heightened concerns about the sustainability of the sector's business model.

CoreWeave, backed by Nvidia and considered the largest player in this segment, fell more than 25% last week. One reason for the decline was also sell-offs of the company's bonds. Its competitor Nebius experienced a drop of similar magnitude.

Following the decline in CoreWeave's shares, Nvidia CEO Jensen Huang expressed confidence in the company's financial position and stated that it did not need a guarantee of additional financial support.

Financing AI infrastructure is becoming increasingly expensive

The scale of pressure in the semiconductor sector is also illustrated by the dynamics of the Philadelphia Semiconductor Index. On Friday, the index closed its eighth consecutive trading session in decline — the longest such streak since October 2008.

According to Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, investment in AI infrastructure is no longer independent of changes in interest rates. To finance projects, companies are increasingly turning to debt issuance and stock offerings, rather than relying solely on their own free cash flow.

He noted that the decline in bond prices of AI infrastructure companies indicates that creditors are demanding higher returns in exchange for financing, as they assess the sector's risks more cautiously.

This trend matters not only for technology companies but for the US economy as a whole. Investment in AI infrastructure has recently contributed significantly to economic growth, while rising technology stock prices have boosted household wealth and consumer spending.

However, if more expensive financing hinders companies from taking on new debt and making investments, the effect could spread across the entire economy. Reduced investment could weaken the revenues of AI infrastructure providers, while falling stock prices could diminish the wealth effect for consumers and negatively affect spending.

Investor sentiment was further affected by reports that Anthropic, one of the leading developers of advanced AI models, is seeing slowing revenue growth.