AI Rally Lifts Nasdaq as Tech Credit Risks Persist

The S&P 500 rose 31.29 points to 7,690.73 on Monday, and the Nasdaq Composite added 290.85 points to 26,430.89 as technology shares recovered from the previous week’s selloff. The Dow Jones Industrial Average went the other way, slipping 36.38 points to 51,966.03. Treasury yields rose as investors returned to technology and AI-related stocks.

Technology Shares Rebound

Chip stocks led the gains, posting their first rise in nine sessions. Nvidia climbed 1.4%, Tesla added 3.8% and Alphabet advanced about 1%. The Nasdaq gained 1.11%, against a 0.41% rise for the S&P 500; the Dow lost 0.07%.

Investors moved back into technology and AI-related shares after the previous week’s sharp selloff. They’d grown concerned that companies were borrowing too heavily to fund artificial-intelligence infrastructure. Traders also reduced bets that CoreWeave and other companies pursuing the AI boom had overextended themselves, and shifted focus to upcoming AI earnings.

CoreWeave, which the article describes as a so-called neocloud company, dropped more than 25% the previous week. Goldman Sachs upgraded the stock to buy, but its early gains faded, and it finished slightly lower on Monday. The company also hit a 52-week low during the session.

Credit Concerns Remain

The rebound in share prices didn’t erase signs of strain in AI-related credit markets. CoreWeave’s bond yields stayed high, and its five-year credit default swaps remained at distressed levels. Oracle debt yields also stayed elevated as credit concerns persisted across AI-related stocks.

Treasury yields climbed as investors moved out of government bonds after turning to them during the previous week’s worries about the AI trade. The benchmark 10-year Treasury note posted its biggest yield increase 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 Tuesday Trading

Nasdaq-100 futures rose 0.2% in early Tuesday trading after the index gained 1.2%. The Philadelphia Semiconductor Index climbed 1.6%, ending an eight-day losing streak. S&P 500 futures added 0.1%, while 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 due back from a holiday.

Investors were set to review company earnings on Tuesday. United Airlines was scheduled to report after the bell, while General Motors was due to report 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.