Chip Stocks Rebound as Nasdaq Opens Up 1.3%; AI Earnings Loom
TREE NEWS reports: US stocks opened higher on Monday, with chip stocks staging a rebound after last week’s selloff. Nasdaq 100 futures rose 1.3%, breaking a five-day losing streak that saw the index fall 5.5%. The Philadelphia Semiconductor Index jumped more than 3%, and an ETF tracking chip stocks rose 3.6% premarket, on track to end a 10-day decline. Memory chip and optical communication names led the gains: Western Digital rose about 5%, SanDisk about 7%, while Micron, SK Hynix and Seagate each gained around 4%. In optical communications, Marvell Technology rose about 5%, Credo and Lumentum each added about 4%, and Corning and Coherent each rose about 3%. CoreWeave, which plunged 25% last week, rebounded over 6% at the open.
Market Implications
The rebound comes after last week’s turmoil, which was triggered by a sharp rise in financing costs for AI companies. CoreWeave’s junk bond yield spiked to 15%, raising widespread doubts about the sustainability of the AI investment boom. “Last week’s shock was a financing scare, not a demand scare, which is why this rebound has some support but remains fragile,” said Aneeka Gupta, research director at WisdomTree. Bloomberg macro strategist Skylar Montgomery Koning noted that the real risk is contagion—AI’s importance to the economy means financing stress could morph into a broader growth problem, as seen in last week’s flight to safety. But for now, equity weakness remains concentrated in AI financing-related trades, with investors rotating internally rather than cutting risk exposure broadly.
Meanwhile, French social unrest weighed on European markets. The Stoxx Europe 600 fell 0.9%, French government bonds led declines, and the spread over German bunds widened further. The euro was the weakest among major currencies. Citi’s head of European equity strategy, Beata Manthey, warned that French equity volatility could persist until after the winter and into the next presidential election, depending on whether parliament has the political energy to push through debt reforms.
In commodities, Brent crude fell about 1.8% to $107.85 a barrel, retreating from a five-month high as traders weighed Middle East tensions against supply that remains largely at pre-war levels. Spot gold rose 0.4% to $4,180 an ounce, and spot silver gained as much as 1.5% to $57.8 an ounce. In bonds, the 10-year Treasury yield fell 1 basis point to 5.06%, extending last week’s 17-basis-point decline, as Treasuries regained their traditional safe-haven appeal. The Japanese 10-year yield dropped 2.5 basis points to 2.905%, and the yen was little changed at 158.07 per dollar.
Key Takeaways for Investors
- Earnings season is the next catalyst. Meta Platforms and Tesla report this week, and investors will scrutinize whether these companies can sustain rapid earnings growth and fund massive capital expenditures amid rising debt costs. These reports are seen as a key test for the AI trade.
- AI financing stress remains a risk. While the immediate panic has eased, the underlying issue—rising funding costs for AI infrastructure—has not disappeared. Watch credit spreads and high-yield yields for signs of contagion.
- French political risk is back. The widening spread between French and German bonds signals concerns about fiscal sustainability. The euro may remain under pressure, and European equities could stay volatile.
- Safe-haven assets are in demand. Falling Treasury yields and rising gold suggest investors are hedging against uncertainty. Morgan Stanley’s Michael Wilson advises preparing to add risk, saying the pullback is nearing its end and that either a rapid recovery or a slow consolidation into November will present a buying opportunity.
