AI Capital Rebounds as Debt Risks Keep Tech Stocks Shaky

U.S. technology shares climbed Monday as investors returned to AI-related stocks, though credit concerns lingered around companies taking on heavy debt to build AI infrastructure. The S&P 500 gained 31.29 points, or 0.41%, to 7,690.73, while the Nasdaq Composite rose 290.85 points, or 1.11%, to 26,430.89. The Dow Jones Industrial Average slipped 36.38 points, or 0.07%, to 51,966.03.

The rebound came after a sharp selloff the previous week, when investors worried that companies were borrowing too much to fund artificial-intelligence infrastructure. Traders returned to technology and AI-related stocks, trimming bets that CoreWeave and other firms chasing the AI boom had overextended themselves. Upcoming AI earnings also caught their attention.

Who Profited from the Rebound

Chips led the technology rally, notching their first gain in nine sessions. Nvidia rose 1.4%, Tesla gained 3.8%, and Alphabet advanced about 1%. The Philadelphia Semiconductor Index climbed 1.6% early Tuesday, ending an eight-day losing streak.

Technology shares lifted the Nasdaq more than the other major U.S. indexes on Monday. Its 1.11% advance took the index to 26,430.89, while the S&P 500 rose 0.41%. The Dow, by contrast, finished down 0.07% at 51,966.03.

Investors returned to AI stocks after retreating from the same trade the prior week. The selloff focused on borrowing for AI infrastructure, prompting traders to reconsider whether CoreWeave and other companies had expanded too far. On Monday, their attention turned to earnings reports due from companies tied to the technology sector.

Debt Concerns Remain

CoreWeave, a so-called neocloud company, plunged more than 25% the previous week. Goldman Sachs upgraded the company to buy, but early Monday gains faded, and the stock ended slightly lower. It hit a 52-week low during the session.

The upgrade didn't wipe away signs of credit stress: bond yields remained high, and the company’s five-year credit default swaps stood at distressed levels. Oracle debt yields also stayed elevated as worries spread across AI-related stocks.

Treasury yields rose alongside technology shares. During the previous week’s anxiety about the AI trade, investors had shifted toward government bonds. On Monday, the 10-year Treasury note yield posted its biggest gain in nearly two weeks.

Jose Torres, senior economist at Interactive Brokers, wrote: “Improving moods regarding the prospects of modern technology have Wall Street breathing a sigh of relief as participants drop hedges, after the cost of volatility protection soared intraday on Friday, ahead of the intensifying selloff.”

Earnings and Futures Ahead

U.S. equity futures rose further in early Tuesday trading. Nasdaq-100 futures gained 0.2% after the index advanced 1.2%, while S&P 500 futures added 0.1%. Dow futures traded 56 points higher, or 0.1%; Nasdaq-100 futures were also reported up 0.2%.

Futures for Japan, South Korea, and Australia pointed lower. Hong Kong traders were set to return from a holiday.

Investors were due to review corporate earnings Tuesday. United Airlines was scheduled to report after the bell, and General Motors before the open. About 70 S&P 500 companies were set to report during the week. Housing starts and pending home sales figures were also scheduled for release Tuesday.