U.S. inflation data for September came in higher than market expectations, fueling concerns that the Federal Reserve (Fed) may raise interest rates further. U.S. tech and artificial intelligence (AI) infrastructure stocks tumbled on Wednesday, with Bitcoin miners also caught up in the sell-off. The S&P 500 fell 1.1%, its biggest one-day drop since July 29. The Nasdaq Composite slid 1.9%, its biggest one-day drop since July 23, while the Dow Jones Industrial Average fell 0.1%.
AI infrastructure stocks sell off, CoreWeave plunges 16%
AI infrastructure companies were at the center of the latest sell-off. Data center operator CoreWeave fell 16%, AI infrastructure provider Nebius dropped 11%, and Oracle declined 9%.
According to the AI Data Center and Infrastructure Index tracked by PRISM, 21 of the 23 included stocks closed lower on Wednesday, with an average decline of 7.46%. This shows that market selling pressure has spread from large-cap tech stocks to the AI industry supply chain.
Markets are concerned that if U.S. inflation remains higher than expected, the Federal Reserve may delay rate cuts or even reconsider raising rates, further increasing companies’ borrowing costs. Many AI infrastructure companies rely on debt to expand their data centers, so higher interest rates could not only increase their interest expenses but also squeeze future profit margins, prompting investors to reassess their valuations.
Bitcoin miners also plunge as AI pivot faces pressure
The decline in U.S. tech stocks also spread to Bitcoin miners, particularly companies that have aggressively expanded into AI computing and data center businesses in recent years. TeraWulf shares fell 12.64% on Wednesday, Core Scientific dropped 12.44%, Cipher Mining fell 12.35%, and IREN declined 12.2%. Riot Platforms, Bitdeer Technologies, MARA, and CleanSpark also fell.
Some Bitcoin miners are leveraging their existing power supplies, land, and data center facilities to expand into high-performance computing (HPC) and AI infrastructure, hoping to diversify their revenue streams. However, this transition also requires significant capital investment, and some companies rely on external financing to fund their expansion plans, making them highly sensitive to changes in interest rates.
As markets begin to reassess the returns and financing risks of AI investment, Bitcoin miners may also face a double impact: they remain exposed to volatility in their traditional mining businesses while also shouldering the capital expenditure and financing pressures of expanding their AI infrastructure.
U.S. inflation rises to 3.7%, rate hike expectations grow
The U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 3.7% year over year in September, above economists’ expectations of 3.6% and well above the Federal Reserve’s 2% inflation target. Rising gasoline prices driven by conflict in the Middle East were seen as a major factor behind the pickup in inflation.
After the data was released, expectations of a Fed rate hike in October rose sharply. The implied probability briefly topped 50% on Wednesday before easing.
However, San Francisco Federal Reserve President Mary Daly told Reuters that further rate hikes may still be needed to control inflation, but there is no need to rush into action in October. She noted that the Fed still has time to gather more information before deciding on its next policy move.
Overall, the U.S. stock market’s decline reflects pressure from rising inflation, a shifting interest rate outlook, and renewed scrutiny of the risks associated with AI investment. If borrowing costs continue to rise, AI infrastructure companies that require substantial capital expenditure, as well as Bitcoin miners aggressively pivoting to AI businesses, may continue to face pressure to revalue.
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