Last week’s market activity was marked by a dramatic selloff in AI-linked stocks and a significant rally in Treasury bonds. The panic selling in AI stocks was triggered by Meta Platforms’ earnings report, which suggested the company may need to raise up to $95 billion in new capital to fund its AI buildout. This realization led to a broad selloff in AI-related stocks, particularly those that were already considered overvalued and free cash flow negative, such as SpaceX.
The bond market saw a flight-to-safety rally, with the 10-year Treasury yield tightening by 20 basis points in a single day. This move was rare and indicated a shift in investor sentiment towards safer assets. Corporate credit spreads also widened, especially for hyperscalers and neoclouds, reflecting concerns about the availability of capital for funding data center buildouts.
Dave Sekera, Morningstar’s Chief US Market Strategist, noted that the market has largely ignored various risks this year, including monetary policy, rising interest rates, and international market dislocations. However, the recent selloff in AI stocks suggests that investors are becoming more cautious about the sustainability of the AI boom.
The podcast also discussed upcoming earnings reports from Alphabet, Microsoft, and Amazon, as well as the implications of slowing growth at Netflix. Sekera provided insights on how to incorporate Morningstar’s stock ratings into an investment strategy and highlighted five stocks that are currently trading at big discounts.