US stocks: AI shares tumble, erasing $80 billion as hot US inflation fuels rate fears

Several AI-linked companies suffered sharp stock declines as investors reacted to higher interest rates and concerns about expensive AI expansion. The losses mattered because these firms had benefited strongly from the AI boom, making their valuations vulnerable when financial conditions tightened.

CoreWeave dropped 16%, while AI infrastructure provider Nebius fell 11%. Cloud computing giant Oracle declined 9%, and AI server seller Dell Technologies also fell 11%. Barclays had downgraded Dell and two other enterprise hardware stocks after Dell shares had quadrupled during the year.

Together, the four companies lost roughly $80 billion in market value. Their declines show how quickly sentiment can change when borrowing costs rise. Higher rates especially pressure companies that need substantial financing or are not yet generating strong profits. The article also notes that 16 S&P 500 technology stocks had at least doubled this year, highlighting the scale of the earlier AI-driven rally.

Market value, also called market capitalization, measures what investors collectively value a public company at. It is calculated by multiplying the current share price by the number of shares outstanding. The figure changes continuously as the stock trades, even when the company’s buildings, employees, or products have not changed.

For example, if a company has one billion shares and its stock falls by $10, its market value falls by about $10 billion. The loss affects the valuation of all shares, not only the shares that were sold. In the article, steep declines in CoreWeave, Nebius, Oracle, and Dell helped erase roughly $80 billion in combined market value.

This is usually a paper loss for shareholders unless they sell. However, it can still matter. A lower valuation can make it harder to raise equity, reduce investor confidence, and increase pressure on companies whose growth plans depend on continued financing.

CoreWeave carries substantial borrowing because it is financing the expansion of its AI cloud business. According to LSEG data cited in the article, the company had issued $22 billion of bonds and $26 billion of loans. That debt makes changes in financial conditions especially important for the company.

The market value of its existing debt also showed stress. A CoreWeave bond issued in June with a 9.625% yield later yielded 15%. Investors demand higher yields when they see greater risk or want more compensation for lending money. The jump therefore signals a sharply higher perceived cost of borrowing for CoreWeave.

The pressure contributed to intense selling in CoreWeave shares. Kim Forrest said investors were receiving information suggesting major AI companies might not produce the earnings or revenue expected. Chief Executive Officer Mike Intrator called the market action irrational and said he remained confident in the company.

A hotter-than-expected inflation report suggests prices are rising faster than policymakers want. Investors may then expect central banks to keep interest rates elevated, or reduce rates more slowly, to restrain demand and inflation. Those expectations can lift market interest rates even before official policy changes.

Long-term government bond yields also respond to inflation and rate expectations. Investors demand more return when future money may lose purchasing power or when rates may remain high. The article reports that US interest rates rose after the hot inflation report, with the 30-year yield reaching as high as 5.63% before pulling back sharply in the afternoon.

Higher long-term yields affect companies because they raise the benchmark cost of financing. They also make future corporate cash flows less valuable in today’s terms. The impact is greatest for marginal borrowers, including unprofitable AI companies that depend heavily on debt to build infrastructure.

When borrowing becomes more expensive, companies must spend more to finance the same projects. Interest payments rise, leaving less cash for hiring, equipment, expansion, or debt repayment. This is especially serious for companies that are unprofitable or already carry substantial debt.

CoreWeave illustrates the mechanism. It had issued $22 billion of bonds and $26 billion of loans, while one bond’s yield rose from 9.625% to 15%. A higher yield signals that lenders want greater compensation. New borrowing would therefore likely cost more, while refinancing existing debt could also become more difficult or expensive.

The article says higher rates are likely to hit unprofitable and less-profitable firms first. Their shares can fall as investors question whether future earnings will cover financing needs. By contrast, companies with strong profits can fund more investment internally. The result may be slower AI infrastructure expansion, more selective spending, and greater pressure on weaker borrowers.

Profitable hyperscalers are better positioned because their businesses generate substantial earnings and cash. They can use those resources to invest in data centers and AI systems without depending entirely on new loans or bonds. Higher interest rates still matter, but they place less immediate pressure on daily operations.

The article identifies Alphabet, Microsoft, Meta, and Amazon as major hyperscalers. Along with SpaceX, they were described as spending about 75% of the money invested in data centers in the country. Jed Ellerbroek said these firms were putting all their profits, and more, into data centers while generating strong returns from those investments.

Smaller AI infrastructure firms face a tougher trade-off. They may need external financing while their profits remain limited. Rising yields then increase interest costs and can weaken investor confidence. The article says long-term rates above 5% and moving toward 6% are a problem for marginal borrowers, especially firms below the largest hyperscalers.

A bond yield is the return an investor expects from holding a bond. It reflects the bond’s payments, price, maturity, and perceived risk. When investors demand a higher yield, the borrower must generally offer more return to attract lenders. Existing bond prices often fall when their yields rise, so their fixed payments become competitive with new market rates.

CoreWeave provides a clear example. A bond issued in June with a 9.625% yield later yielded 15%. That change showed investors demanded much more compensation to hold the debt. For CoreWeave, new borrowing or refinancing would likely become more expensive, adding pressure to a company already carrying large amounts of debt.

Higher yields also affect stock valuations. Investors compare company profits with safer available returns. When rates rise, profits expected years ahead are worth less in today’s money. This helps explain why heavily financed, less-profitable AI firms can suffer more than highly profitable hyperscalers.