Credit panic hits AI trading: CoreWeave bond yields remain high, Nasdaq posts biggest weekly drop since late June

U.S. stocks fell across the board on Friday as investor concerns mounted over whether AI-related companies can generate enough profits in time to cover their high levels of debt, with the tech sector bearing the brunt. The Nasdaq Composite Index dropped approximately 4.5% this week, marking its biggest single-week decline since the week of June 26.

Market worries about the debt risks faced by AI infrastructure firms continue to intensify. Yields on some CoreWeave bonds briefly surged above 15% on Thursday and remained elevated on Friday. CoreWeave's share price plunged another 12% on Friday, with a total drop of over 50% from its year-to-date high.

Meanwhile, Federal Reserve Chair Jerome Powell declined to provide any guidance on the outlook for the October rate meeting during an International Monetary Fund event in Bangkok, leaving the market without policy direction. Yields on long-term U.S. Treasuries climbed further with rising oil prices and inflation concerns, with the 10-year Treasury yield rising to 5.097%.

The selloff in semiconductor and tech stocks spread to Asian markets starting Wednesday. South Korea's benchmark index sank 14% this week, the largest weekly drop since the 2008 global financial crisis, and is now more than 37% below its summer peak.

The deeper logic behind the tech sector’s decline lies in growing concerns about a mismatch between the pace of AI commercialization and rising financing costs.

CoreWeave has borrowed at least $35 billion to build data centers, and despite public endorsement from one of its biggest suppliers—Nvidia CEO Jensen Huang—its stock still fell 12% in a single day.

Lorenzo Di Mattia, founder and CIO of hedge fund Sibilla Capital, said, "As credit and capital costs reach unsustainable levels, companies will sooner or later have to scale back plans and cut capital expenditure." Lorenzo Di Mattia stated he currently holds a small amount of short positions on the U.S. stock market.

Nvidia’s stock dropped 1.4% to $214.13, while another CoreWeave supplier, Dell Technologies, slid 4.6% to $451.71. Dell fell by more than 22% this week, its biggest weekly decline since relisting in 2018.

JJ Kinahan, Senior Vice President at CBOE Global Markets, noted, "We are in a high-risk area, but such credit pressures often spur M&A activity, which is a common outcome in these circumstances."

The U.S. Treasury market showed clear divergence across maturities, reflecting complex market expectations about inflation and growth prospects.

The 10-year Treasury yield rose by 0.011 percentage points to 5.097%, and the 30-year yield increased by 0.009 percentage points to 5.436%, partially reversing Thursday’s drop, but both posted their largest weekly declines in over a year.

In contrast, the 2-year Treasury yield dropped by 0.013 percentage points to 4.734%, recording its biggest weekly fall since August.

Powell’s remarks at the IMF event in Bangkok were overall cautious, refusing to provide any forward guidance on rates at the October FOMC meeting. Rising oil prices and broad-based inflation worries remain key drivers of longer-term yields.

Amid broad declines, some sectors showed relative resilience, revealing clear internal market differentiation.

The financial sector was one of the few bright spots, as regional banking groups such as M&T Bank and Citizens Financial delivered generally strong quarterly results. Apple’s stock edged up 0.4% to $343.46, as the company maintains a traditionally cautious approach to AI development. Initial orders for its foldable smartphone, iPhone Duo, are reportedly strong.

In cybersecurity, Varonis Systems’ stock rose 2.9% to $48.72 after non-listed company Proofpoint announced it would acquire the data security firm for about $6.3 billion to strengthen its position in the AI security market.

Among small caps, the Russell 2000 index slid further into correction territory, narrowing its year-to-date gain to around 10%.