Why tech stocks are slumping

For years, the market rule has been simple: write "AI" on a napkin, hand it to an investor or lender, then receive a billion dollars.

But if you listen veeeeery closely to the trading floors of Manhattan, Seoul, Tokyo, and Amsterdam today, you might now hear the faint, agonising sound of financial models being frantically updated for the first time in a while.

So let's do a quick world tour of this tech sell-off, starting with...

• ☁️ 15%

That's now the eye-watering yield on corporate bonds issued by CoreWeave.

If you haven't been tracking the 'neocloud' world, CoreWeave is the poster child: a former crypto-mining firm (!) that pivoted to buying tens of thousands of Nvidia chips, bundling them into massive data centres, then renting them out to AI labs.

To build that empire, CoreWeave has borrowed... oh, $50B? But secondary markets are now trading those bonds in jittery ways. For example, unsecured 2032 notes CoreWeave issued just in June at 9.6% (ie, we'll pay you 9.6% annual interest until 2032) are already now getting repriced at 15%.

Translation? CoreWeave's lenders — worried whether they'll get repaid — are selling off those $100 IOUs, but folks are only willing to pay ~$75 for the risk!

Or to put it another way, markets are worried the canary in the levered AI infrastructure mine is about to croak.

Why? CoreWeave revealed it's now burning nearly a quarter of all revenue just on interest, delivering one of the highest recent debt-service ratios. That's approaching distressed levels, as analysts at Gartner warn that ~80% of the world's independent neoclouds might not survive the decade intact!

Okay, so is this just a CoreWeave problem? Well...

• 🔴 9%

That's how hard Oracle's shares fell in the same Wednesday session that hammered CoreWeave. Oracle! A decades-old software giant long seen by markets as a smarter, more diversified way to ride the AI boom than highly-leveraged crypto-bros.

But it's still now effectively (among other things) a massive debt-fuelled AI infrastructure landlord, and markets are warning that unless you have Google or Microsoft-sized pockets, paying off all that floating-rate debt while waiting for your AI startup customers to finally monetise might be a dangerous game.

So it's not just one canary in one mine. In fact, several others just chirped, whether Oracle in the US, Nebius in Amsterdam (-20%), IREN in Australia (-25% in two weeks), or SoftBank in Japan (-9% on its broader investor exposure).

Now while we're in Japan, let’s consider...

• ⚡ 7.2%

That's the brutal single-day drop for Japan's chipmaking tool giant, Tokyo Electron. Why?

It's one of several (like Korea's Samsung and Hynix) sweating at the weekend flex by China's memory underdog CXMT that a) it's made progress on a new type of high-density DRAM, and b) it's now cracked 10% global market share.

So you've got East Asia's hardware giants suddenly feeling sandwiched between squeezed Western buyers on the one slice, and China's rising suppliers on the other, making some of those valuations look tougher to justify. Even the original Dutch lithography gurus at ASML — still considered way out in front — copped a ~7% hit.

Okay, so maybe some nerds lose some cash. No big deal? Well...

• 🏛️ 10%

That's the share of all new investment-grade corporate bonds worldwide now being issued by the big AI hyperscalers, according to the IMF's latest Global Financial Stability Report this week. Two years ago? It was just 1%.

Or to put it another way, even the deep-pocketed hyperscalers (Microsoft, Google, Amazon etc) have hit the limits of their free cash flow and are now borrowing so much, it's brewing a broader systemic risk.

How? The IMF is warning about what's long been a meme: we're talking ~$1T in convoluted circular financing deals where the AI boom is somehow financed by a few firms role-playing as both suppliers and customers. If those future profits don't pan out, you get everyone — not just those neocloud crypto-bros — wobbling at once.

Yikes, surely Intrigue must conclude this piece with a positive palate-cleanser? Fine.

• ⛏️ 69%

That right there is not just a funny line from Billy Madison (though it is), but actually the massive jump in quarterly profit just recorded by Taiwan's legendary chipmaker, TSMC. They've posted a record $23.6B quarterly net profit, now raising their full-year growth outlook another ~44%.

So... what gives? Is TSMC immune to this sell-off? Or it’s the last domino to fall?

There's evidence for both. TSMC is still AI's absolute bottleneck: whether you're a deep-pocketed hyperscaler or a debt-hooked neocloud, everyone still has to pay TSMC to make the chips. And right now, TSMC's fabs are still running at capacity, with a waitlist! So physical demand hasn't collapsed... yet?

We add that open-ended 'yet' for dramatic effect, but also because if high interest rates keep crushing those neoclouds and forcing Big Tech to tap the brakes, those orders might indeed slow down.

So it's possible TSMC isn't proof the tech trade is healthy, so much as just proof the canary still way back out near the mine's entrance is feeling fine. Or to put it another way, TSMC's record profits might be proof of the ol' cliché that when a gold rush ends, the guy selling the pickaxes tends to be the last to go broke.

Sound even smarter:

• Treasury and German Bund yields caught an unexpected break this week, cooling off to multi-week lows. It’s a signal that for all their faults, they might still be among the best safe-havens on offer.

• Tokyo Electron (+40% YTD), Samsung (+65% YTD), and Hynix (+75% YTD) are still having a phenomenal year. Oracle is down ~30% for the year.