AI stocks are taking a beating amid inflation, interest rate worries

Artificial-intelligence stocks are experiencing a sell-off on Wall Street, as investors grapple with concerns over the sustainability of the AI frenzy. The S&P 500 dipped by 0.5%, while the Nasdaq composite declined by 1.2%. The Dow Jones Industrial Average, however, managed to rise by 269 points. Tech giants Nvidia and Advanced Micro Devices saw their stocks drop by 3.2% and 5.4% respectively.

South Korea's Kospi index took a significant hit, falling by 7.6%. This downturn coincided with a report indicating that U.S. inflation has worsened more than economists had anticipated, with wholesale inflation surging due to a sharp rise in energy costs. As a result, concerns about inflation and interest rates are casting a shadow over the high-growth sector.

Nvidia and Advanced Micro Devices were among the hardest hit, with Nvidia's stock falling by 1.6% in early trading and Advanced Micro Devices retreating by 3.1%. The rising bond yields, which have made borrowing more expensive, could make it more challenging for companies to raise funds for building data centers and stocking them with AI chips.

The Federal Reserve's potential interest rate hike before the year's end could further pressure the equities market. The latest inflation figures revealed that prices remain well above the Federal Reserve's 2% target, prompting another potential rate increase. As the U.S. enters its earnings season, the market will be closely watching for any signs of a slowdown in AI spending growth, which could dampen demand for chips and equipment.