Wall Street's benchmark indices staged a recovery on Thursday, with the Dow Jones Industrial Average surging by 550 points. The Nasdaq Composite and S&P 500 also reversed earlier losses to end the session slightly higher, despite lingering concerns over high inflation. The rebound came as investors stepped in to halt the sell-off in AI and semiconductor shares, which had been driven by worries over CoreWeave, a major player in the AI infrastructure space.
Shares of Nvidia, AMD, and other memory chipmakers like Sandisk, Western Digital, and Seagate initially extended Wednesday's losses but recovered sharply from their intraday lows. Nvidia CEO Jensen Huang's optimistic remarks about CoreWeave helped ease some investor nerves. Huang noted that the cost of capital for CoreWeave is declining, despite the company's significant debt concerns. Nvidia holds a nearly 10% stake in CoreWeave, making it the second-largest shareholder.
However, concerns about CoreWeave's debt persist. Credit Default Swaps now suggest a 60% chance of the company defaulting on its repayment obligations within the next five years. The yield to maturity on CoreWeave's 9.75% bond due in 2031 surged to 15.78%, with swap spreads crossing distress levels. Analysts remain divided on the long-term prospects of AI infrastructure companies, with some questioning whether all players in the space will deliver attractive returns.
Meanwhile, the market digested a hotter-than-expected wholesale inflation print. The September Producer Price Index (PPI) rose 1.3% month-over-month, the highest monthly increase since March 2022, and well above estimates of 0.6%. Year-over-year, the PPI increased by 6.3%, compared to expectations of 5.5%. The probability of a 25 basis point interest rate hike by the Federal Reserve in October now stands at 28%. All eyes will be on Fed Chair Kevin Warsh, who is set to engage in a fireside chat with IMF Managing Director Kristalina Georgieva later in the day.