AI Debt Boom Shakes Chip Profits and Markets

The Nasdaq Composite fell roughly 2.5% Friday as investors reassessed the debt and costs behind the artificial-intelligence buildout. CoreWeave, a debt-financed computing provider, lost 14%. The Nasdaq dropped almost 5% for the week, its worst performance since June, while the S&P 500 fell 1.4% Friday and more than 2% for the week.

Both indexes had reached record highs 10 days earlier. Higher interest rates, mounting AI-related debt and risks to technology companies have since pressured parts of the boom that rely on borrowing. CoreWeave, backed by Nvidia and public since 2025, carries tens of billions of dollars in debt to finance growth. Its bond yields recently climbed to levels that signal distress or a higher risk of default.

Debt Behind the Buildout

“It's unclear that (CoreWeave is) going to get a sufficiently good return to pay down the debt that they borrowed,” Gil Luria, head of technology research at D.A. Davidson, told CNN. He said AI demand is real and growing, but it conflicts with concerns about unsustainable financing and steep interest rates. “As people get concerned about the trajectory of the buildout, they are the subprime tranche of the AI trade, and that's why they're selling off first.”

Nvidia CEO Jensen Huang told Bloomberg on Thursday that he was optimistic about CoreWeave, helping the company’s shares rally that day. The gain didn't last. CoreWeave lost one-quarter of its value during the week and stood more than 60% below a peak reached shortly after its March 2025 initial public offering.

A closely watched semiconductor-stock index fell 3.9% Friday, marking its eighth consecutive daily decline. Investors had driven chip shares higher this year on expectations of a large AI buildout and chip shortages that could bring substantial profits. Then they weighed higher costs and the possibility that political disputes over data centers could hurt growth forecasts.

Margins, Competition and Public Support

The New York Times DealBook item said the largest technology companies would spend around $800 billion on AI infrastructure in 2026, with consensus forecasts above $1 trillion for 2027. Goldman Sachs said that investment would make up a larger share of gross domestic product than any investment cycle since the railroads. Washington has made AI a national priority, but questions remain about the cost of the buildout and whether companies could do it for less. Tax credits help fund some of the spending underway.

Nvidia reported a gross margin of 75% in the previous quarter. Micron, which sells memory chips, reported a margin of nearly 87%, after losing money on memory chips three years earlier. DealBook said shortages set prices and high margins typically attract competitors, but competition hasn't yet cut margins in the AI buildout. It said the signal had been visible since 2023.

AMD, custom silicon from Amazon and Chinese open-weight models could eventually lower costs, DealBook said, though that would take time. Earlier in the week, Chinese memory-chip maker CXMT announced progress on advanced memory chips. Investors had counted on U.S. and South Korean chipmakers keeping dominant market share and pricing power, and they were debating whether cheaper, efficient Chinese chips could weaken that outlook.

The semiconductor index stood more than 20% below its June peak but remained up almost 60% year to date. South Korea's Kospi, heavily weighted toward SK Hynix and Samsung Electronics, fell 14.5% during the week, its worst weekly performance since 2008. Semiconductor companies made up roughly one-fifth of the S&P 500's market value.

“The market sells first, asks questions later,” said Thomas Martin, portfolio manager at Globalt Investments. Wall Street's fear gauge, the VIX, rose 30% Friday to above 20 points, signaling elevated volatility. Federal Reserve chairman Kevin Warsh suggested he wouldn't push to raise borrowing rates that month, DealBook said, though persistent inflation could force the Fed's hand.