Wall Street faced dual pressures this week as a deepening rout in the AI complex intersected with oil prices reaching $110 a barrel, threatening to complicate inflation containment efforts. The AI selloff extended into debt financing, with bonds of neocloud provider Core Weave Inc. signaling distress as investors questioned the justification for massive computing investments. An eight-session rout in semiconductor shares, the longest since 2008, wiped roughly 16% off the sector benchmark, while the Nasdaq 100 lost 5.5% for its worst week since April 2025 tariff turmoil.
Two hotter-than-expected inflation reports accelerated demand for government debt, though oil's surge to multi-month highs briefly reignited inflation fears. Long-dated Treasuries, as measured by the TLT ETF, saw one of their strongest yearly weeks. In Bank of America's October fund-manager survey, 45% of respondents identified long global semiconductors as the most crowded trade, down from 82% in July, while short Treasuries rose to 27% from 18%.
The popular DRAM memory fund fell 19%, its steepest weekly loss since launch, extending eight consecutive weeks of outflows. Michael O'Rourke of Jones Trading noted markets had priced bubble valuations for AI companies, signaling the bubble is starting to deflate. The coming earnings season will be critical in determining if AI revenues keep pace with spending, while elevated energy prices threaten to sustain inflation pressures and complicate the Federal Reserve's next move.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing