AI infrastructure firms slump as US rate hike bets rise

Oct 14 (Reuters) - Shares of ‌debt-heavy AI ​firms ​tumbled on Wednesday as prospects of higher interest rates intensified concerns over the financing of the industry's massive ‌buildout.

Companies whose shares had rallied earlier this year on ⁠AI optimism were some of the worst performers on the main benchmarks.

Here ‌are the details:

• Shares of ‌neocloud firms Nebius and CoreWeave dropped 15.1% and 9.5%, respectively

• CoreWeave stock set to wipe out about a quarter of ​its value this month, Nebius set to erase almost 20%

• Data center operators Applied Digital and IREN down 8.8% ⁠and 9.9%, respectively

• Shares of debt-laden AI hyperscaler Oracle were down 7.2% and most of ​its dollar bonds had also declined

• "Investors are questioning whether the AI buildout will generate the returns that ​were expected," said Kim Forrest, chief ‌investment officer at Bokeh Capital Partners

• AI server makers Dell and HPE dropped 10.3% and 6.4%, ⁠respectively, as Barclays downgraded the ratings on the stocks to "equal-weight" from "overweight"

• "Valuations have run, commodity costs have helped revenues, and we don't see a ⁠meaningful AI inflection yet," Barclays said

• Higher rates mean elevated costs for firms ​borrowing to build data centers and buy AI chips

• The prospect of a second Federal Reserve rate hike as soon as this month rose ‌following hot consumer price data

• 10-year Treasury yields climbed 3.6 bps, two-year yields jumped 7.2 bps

• ‌The cost of insuring debt against defaults for some AI companies, ⁠including Oracle and CoreWeave, ‌surged to record highs, ​as per S&P Global Market Intelligence data

(Reporting by Shashwat Chauhan and Darshan Kumar in Bengaluru; Editing by ‌Shinjini Ganguli)

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