AI stocks bounce back after bruising selloff, CoreWeave gets Goldman upgrade (updated)

Meta Platforms

Mon 14:59

Philadelphia chips index set to snap longest losing streak since 2008
CoreWeave up on brokerage upgrade after 25% slide last week
J.P.Morgan upgrades Intel to "neutral" from "underweight" 
Updates prices throughout, adds graphics and analyst comments
By Shashwat Chauhan
Oct 19 (Reuters) - AI-linked stocks bounced back on Monday from a bruising selloff last week as yields on government bonds dropped and crude oil prices eased, while CoreWeave gained following a rating upgrade.
Its shares CRWV.O were up 2.4% in choppy trading after losing a quarter of their value last week as the neocloud company's $50 billion debt triggered a crisis of confidence, sparking a global selloff across AI and tech stocks.
"It's going to continue to be a factor, it's going to be a constant push-pull over time," said Thomas Hayes, chairman at Great Hill Capital.
Goldman Sachs upgraded CoreWeave to "buy" from "neutral", saying tight computing capacity and the company's performance advantage over rival neocloud firms should lift annual recurring revenue per megawatt over the next two years. The brokerage said the recent pullback is a buying opportunity.
The yield on CoreWeave's bond maturing in 2031 US21873SAG30=TE fell 19.5 basis points to 15.13%, easing from more than 16% last week, according to Tradeweb data.
Neocloud rival Nebius Group NBIS.O rose 3.4% after tumbling more than 31% in the past two weeks. Data center operators Applied Digital APLD.O and IREN IREN.O gained 8.5% and 5%, respectively.
"You could certainly see a dead cat bounce today and maybe some continuation tomorrow, but it doesn't change the fact that the bond market is very skeptical about continuing to finance this without demanding higher and higher yields," added Hayes. 
The AI trade stumbled last week after a hot inflation reading raised bets for interest-rate hikes, fuelling concerns that heavily indebted AI companies could face higher borrowing costs.
Morgan Stanley expects total AI investment to surge to $1.6 trillion in 2027 and $1.8 trillion in 2028.


The Philadelphia Semiconductor Index .SOX dropped more than 11% last week, with chip stocks among the hardest hit in the AI rout.
The index has shed around $2 trillion in market value during an eight-session losing streak through Friday. It was last up 2.4%, on course to snap its longest losing streak since October 2008.
Intel INTC.O climbed 4.5% after J.P. Morgan upgraded the stock to "neutral" from "underweight", saying rising agentic AI workloads and tight supplies of advanced chips could support positive earnings estimate revisions through 2027.
Nvidia NVDA.O added 1.5%, AMD AMD.O gained 3.6% and Broadcom AVGO.O advanced 2.4%, after all three sold off sharply last week.
Memory-chip maker Micron Technology MU.O climbed 4.2% after sliding nearly 15% last week. Data-storage firms Sandisk SNDK.O, Western Digital WDC.O and Seagate STX.O gained after steep declines last week.
Earnings from megacap technology companies and hyperscalers could be the next test for the AI trade that powered Wall Street to record highs earlier this year, as investors look for evidence that earnings growth can offset concerns over valuations, debt and interest rates.
Facebook-parent Meta Platforms META.O and Elon Musk-led Tesla TSLA.O and SpaceX SPCX.O will report results later this week.
Semiconductor companies Lam Research LRCX.O, Texas Instruments TXN.O and Western Digital, are also set to report quarterly results.
"The question this quarter is not whether AI will continue to grow, it's whether investors are still willing to pay a premium for that growth," said Jay Woods, chief market strategist at Freedom Capital Markets.
        

 (Reporting by Shashwat Chauhan in Bengaluru; Additional reporting by Purvi Agarwal; Editing by Anil D'Silva and Arun Koyyur)
 ((Shashwat.Chauhan@thomsonreuters.com;))