The sell-off in AI-related stocks, according to Baird tech strategist Ted Mortonson, is increasingly about who needs financing and what that financing costs.
“I think the street is tiring of the Bank of Nvidia, the Bank of AMD and the Bank of Broadcom,” Mortonson told Yahoo Finance Senior Reporter Brooke DiPalma (video above), referring to chipmakers Nvidia (NVDA), AMD (AMD), and Broadcom (AVGO).
“This is very unusual in this cycle… It’s not going over well with the institutional community,” he added.
Mortonson pointed to “a higher cost of capital” and “a lot of scrutiny now on circular finance,” which he said was “coming out of the Anthropic research meeting.”
Anthropic (ANTH.PVT) reportedly told investors at a closed meeting that its third-quarter revenue climbed to $16.8 billion.
CoreWeave stock (CRWV) fell more than 15% on Wednesday and fell again in pre-market trading on Thursday. Mortonson noted that that CoreWeave, Nebius (NBIS), and Oracle (ORCL) are “probably at the bottom” of tech on free cash flow.
Read more: Oracle stock falls on more debt to fund AI chip buying, OpenAI revenue disclosure
These companies are “very dependent on financing going forward,” he said., adding: “That is the real issue… their free cash flow and the cost of capital [is] so elevated today that anything that has that exposure is being sold.”
Adding to the souring sentiment, a new Gartner forecast that most neocloud providers will “cease independent operations” by 2030.
‘That’s the million dollar question’
Chipmakers with strong results are getting hit, too.
“Portfolio managers are selling names that have unadulterated blowout numbers, and they’re not acting well,” Mortonson said, pointing to Samsung (005930.KS), Micron (MU), and ASML (ASML).
Read more: Global chip sell-off deepens as South Korean market plunges
So is the drop a chance to buy? “That’s the million dollar question,” Mortonson said.
The PHLX Semiconductor Index (^SOX) was up about 87% for the year as of Oct. 6, which he called “a good decade of performance.” It closed Wednesday up 65% for that period.
The pullback is “healthy,” Mortonson said, but it also “represents that the institutional community that has been very overweight the infrastructure play [and] is going elsewhere.”
Where? “They’re probably going to software, to be honest with you.”
Some money is leaving tech altogether, he added, as a lot of portfolio managers “are trying to lock in performance as they go into the end of the year.”
Internal AI tools helped analyze interview transcripts, research, and draft this post. Humans reviewed, edited, and fact-checked this post before publication.
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Source: finance.yahoo.com
