As market expectations for a US interest rate hike intensify, artificial intelligence infrastructure stocks experience a sharp decline.

Reuters, October 14 - On Wednesday, heavily indebted artificial intelligence companies saw their share prices tumble as the prospect of interest rate hikes intensified market concerns over the sector’s large-scale expansion financing.

Companies that had seen their shares surge earlier this year on optimism about the artificial intelligence market turned in the worst performances among major indexes this time.

Details are as follows:

• Cloud service newcomers Nebius (NBIS.O) and CoreWeave (CRWV.O) saw their share prices fall by 15.1% and 9.5% respectively

• CoreWeave’s shares are expected to lose around a quarter of their value this month, while Nebius is forecast to shed nearly 20%

• Data center operators Applied Digital (APLD.O) and IREN (IREN.O) saw their shares drop 8.8% and 9.9% respectively

• Heavily indebted AI hyperscaler Oracle (ORCL.N) dropped 7.2%, and most of its dollar bonds also declined in price

• “Investors are questioning whether building out AI will deliver the expected returns,” said Bokeh Capital Partners Chief Investment Officer Kim Forrest

• After Barclays downgraded AI server makers Dell (DELL.N) and Hewlett Packard Enterprise (HPE.N) from “overweight” to “neutral”, their shares fell by 10.3% and 6.4% respectively

• “Valuations have risen significantly and commodity costs have pushed up revenues, but we have yet to see a meaningful inflection point in the AI space,” said Barclays

• Rising interest rates mean companies will face higher costs when borrowing to build data centers and purchase AI chips

• Driven by strong consumer price data, expectations grew in the market that the Federal Reserve could raise interest rates again as early as this month (link)

• The yield on 10-year Treasuries (US10YT=RR) rose by 3.6 basis points, while the yield on 2-year Treasuries (US2YT=RR) soared by 7.2 basis points

• According to S&P Global Market Intelligence, the cost of credit default insurance for some AI companies, including Oracle and CoreWeave, has surged to record highs

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