AI Shares Stabilize After Sharp Nasdaq Drop Amid Anthropic IPO Buzz
Market Reactions and Investor Sentiment Following Nasdaq Decline
By Caroline Valetkevitch
AI Stocks Performance After the Drop
NEW YORK, Oct 23 (Reuters) - Big AI stocks were mixed on Friday, a day after the biggest decline in the Nasdaq Composite Index in four months, giving investors a welcome respite as they look forward to more information on Anthropic's forthcoming IPO and a further wave of earnings over the next week.
Meta Platforms and Shareholder Costs
Meta Platforms, the center of Thursday's storm, was fractionally lower following Thursday's 7% decline. The operator of social media networks and major AI investor said in its earnings report this week that it would create a new class of shares in part to raise money for further capital spending, which was taken as evidence that the next leg of the AI buildout will be costly for shareholders.
Mixed Results for Other Major AI Players
Other major AI players were mixed on Friday, with SpaceX, Oracle and Dell Technologies up 1% to 2% and Nvidia, Alphabet and Amazon down less than 1%. Big semiconductor stocks were mostly higher after their largest decline since the summer on Thursday.
Credit Default Swaps and Market Indirection
Trends in Credit Default Swaps
Credit default swaps tracking the perceived risk of default at the biggest AI players were mostly modestly lower, with Meta's five-year CDS spread trading 0.3% narrower at 123, according to LSEG data. The swaps enable investors to bet on a default using contracts typically with terms of five or 10 years, though contracts frequently change hands for the purposes of hedging positions and betting on near-term market moves.
Market Indirection and Investor Behavior
Thursday's deluge and the day-after calm is the latest sign of indirection in a market that has hovered near record highs without breaking out, said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.
Market Treading Water
"To some extent, we're seeing the market tread water over a longer period of time because every sell-off has been met by buyers and every point upward has been met by sellers," Meckler said.
The Nasdaq was barely changed on Friday afternoon.
Volatility, AI Spending, and Future Outlook
Rising Credit-Default Swap Premiums
Credit-default swap premiums, reflecting the annual cost borne by the swap purchaser in thousands of dollars, have risen over the past year with concern about the risks being taken on by large AI spenders. The premiums rose on Thursday after Meta's decision to sell more stock, as much of the buildout to date has been financed through debt issuance.
Impact of Treasury Yields and Inflation
The concerns around AI spending and investment returns have added to the market's volatility since Treasury yields rose sharply in August, which changed the economics of investing and bond issuance, given the increasing attractiveness of a higher risk-free rate.
Expert Commentary on Volatility
It's been "a very volatile week," said Art Hogan, chief market strategist at B Riley Wealth in Boston. "There's no doubt at some point in time that the higher inflation moves, especially if driven by unsustainably higher energy prices ... would have to show up in corporate earnings. It hasn't yet, but that's the concern. And market participants are trying to position for that."
Neoclouds and Capital Scarcity Concerns
Shares of neoclouds, smaller companies tied to AI data centers and other infrastructure projects like CoreWeave, have dropped due to anxiety over their future. Their performance of late has also raised talk on Wall Street that capital is growing scarce - which stands to raise costs further and potentially raise funding issues down the road.
Looking Ahead: Anthropic IPO and Sector Outlook
Upcoming IPOs and Earnings Reports
Even so, many investors remain positive on the sector, where giant AI lab Anthropic is expected to publish its IPO prospectus in coming days and Alphabet, Amazon and Microsoft are expected to report earnings next week.
Sector Growth and Sustainability
"In general, AI news in terms of revenues continues to be very strong, it's just at what cost and how long that growth is sustainable," Meckler said. "We really haven't gotten to the point of the market sort of focusing on winners and losers. It's been one big sector trade every day."
(Reporting by Caroline Valetkevitch, editing by Colin Barr, David Gaffen)
