AI Financing Fears Trigger Tech Selloff as CoreWeave Leads Nasdaq Down 2% on the Week

A wave of anxiety over the debt-heavy financing model underpinning the AI buildout sent tech stocks sharply lower on Friday, with the Nasdaq 100 falling 2% on the day and the S&P 500 down roughly 1%, capping a steep weekly loss for both indexes. CoreWeave was at the center of the storm, with its shares down more than 15% for the week and falling an additional 5% in premarket Friday trading. The company's credit default swap spreads surged past 1,000 basis points, with credit markets pricing in a 54% probability of default, as its total debt load approached $50 billion. Broader AI infrastructure names including Nebius, Oracle, Applied Digital, and data center hardware makers all fell sharply, with a cluster of AI, memory and data-center stocks now sitting 30% or more below their 52-week highs even as the S&P 500 remained near record levels.

The selloff was amplified by a punishing interest rate environment. The 10-year Treasury yield hit 5.34% earlier in the week, its highest level since 2007, before pulling back to around 5.09% to 5.125% on Friday as investors sought safety in government bonds. The iShares 20-plus-year Treasury ETF, TLT, climbed 1.37% to $79.97 and was on pace for its best week since March 2025, though it remains down 8.11% year-to-date and sits at just the 6th percentile of its 52-week range. The VIX eased 2.43% to 16.46, suggesting some stabilization in volatility even as equities slid. Fed rate-hike odds collapsed from 55% to 13% after Fed official Kevin Warsh signaled an October pause despite CPI running at 3.7%, with prediction markets pricing an 86% chance of a hold.

Bank of America issued a formal warning that the AI investment boom is showing hallmarks of a classic capital-cycle bubble. Hyperscaler capital expenditure expectations have jumped from $330 billion to $1 trillion, equivalent to roughly 3% of U.S. GDP, while AI token prices have fallen about 50% since summer, raising concern that rising usage is not translating into sufficient revenue. BofA strategist Michael Hartnett separately flagged a risk-off period over the next three to four weeks, citing 3% real yields, persistent inflation, AI valuation concerns and midterm election uncertainty, with a preference for small caps, REITs and consumer discretionary over additional technology exposure. The IMF, speaking at its annual gathering in Asia, warned that an AI investment bust in a downside scenario could reduce global growth by up to 1.3 percentage points in 2028, noting that U.S. AI infrastructure spending could exceed $10 trillion through 2032.

Despite the turmoil, capital flows told a more nuanced story. Global equity funds drew $20.01 billion in inflows for the fourth consecutive week through October 14, with U.S. equities absorbing $39.1 billion of a total $64.5 billion in weekly stock inflows. U.S. Treasuries attracted $3.6 billion, their 16th straight week of positive flows, and overall bond funds recorded $11.8 billion in inflows. Retail investors poured $9.1 billion into U.S. equities last week with a focus on AI-linked semiconductors and neoclouds, even as institutional money rotated into defensive sectors. Anthropic received a BB+ credit rating from KBRA, one notch below investment grade, ahead of a $35 billion chip financing deal, with Wall Street reportedly assembling a further $60 billion financing package tied to Google and Broadcom chips. ARK's Cathie Wood argued that CoreWeave would ultimately benefit from AI demand, and JPMorgan said markets were overreacting to CoreWeave's weekly 20% decline. Taiwan separately announced plans to build a $4 billion AI manufacturing complex in Texas to support Nvidia's supply chain, while tightening AI chip export controls on China in alignment with U.S. restrictions.