(Oct 16) : Wall Street staged a comeback after losses driven by concerns about the sustainability of the artificial-intelligence trade that has powered the bull market in stocks.

The S&P 500 halted a three-day drop. A selloff in chipmakers eased as Nvidia Corp.’s chief Jensen Huang defended the financial health of AI computing supplier CoreWeave Inc., a major customer in which the company is also an investor. That was after a measure of credit risk at the data-center operator hit an all-time high, triggering fresh jitters about the AI sector.

In a sign of rotation to other sectors, an equal-weighted version of the S&P 500 — which strips out market-value biases — climbed 1.4%. Worries about the durability of the AI investment cycle have also intensified a debate about whether bonds are offering value after a plunge that had sent yields to multi-year highs.

Concerns about CoreWeave’s viability have contributed to a recent rout in stocks amid speculation that the massive buildout of AI infrastructure has outrun the ability of companies to get a return on their investments.

Given the extraordinary amounts of debt being taken on to build out AI infrastructure, higher borrowing costs are far from ideal, according to David Morrison at Trade Nation.

“Two questions matter. Is demand for AI real? Yes,” said Manish Singh at Crossbridge Capital. “Are we going back to working and using software as we did before AI? No. The structural opportunity is real, but that does not mean every company building the infrastructure will generate attractive returns for investors.”

Ultimately, the AI revolution will be judged not just by how much computing power we build, but by how profitably we use it, Singh noted. Future cash flows must justify today’s enormous capital commitments, and someone must finance the gap in the meantime, he said.

“AI may be the future. Debt servicing is still the present,” Singh concluded.

Looking ahead, all eyes will be on Federal Reserve Chair Kevin Warsh’s remarks for clues on whether officials are pivoting from a skip to an October rate-hike in light of the latest inflation data, according to Krishna Guha at Evercore.

“On balance, we think Warsh will talk in a way that does not suggest an October hike,” Guha said. “Warsh will be mindful of the global wobble in tech stocks and signs financing conditions are tightening for more exposed AI names, on top of the prior move up in longer-term yields.”

The Fed chief is due to speak late Thursday New York time in Bangkok, where he is scheduled to appear in a fireside chat with International Monetary Fund Managing Director Kristalina Georgieva.

uploaded by Isabelle Francis