Optimism meets concerns

Rising bond yields also put pressure on segments of the equity market with high valuations. Semiconductor shares, which had been a major driver of the rally, came under pressure and pulled the wider technology sector lower. The pullback reflected investors' reassessment of the AI theme.

Regional differences became more visible. Asian technology markets led the semiconductor sell-off as progress by Chinese memory producers raised questions about competition and future pricing power. US telecommunications also weakened after SpaceX acquired so-called low-band spectrum, potentially challenging the established competitive landscape.

Financials were more resilient, supported by solid bank results, while energy remained sensitive to news around the Middle East and Russian energy supplies. Overall, investors favoured visible earnings and manageable financing needs over distant growth promises.

Two company stories captured the shift in sentiment. The quarterly results published by ASML this week were initially well received. Investors welcomed the continued demand for the advanced equipment needed to expand leading-edge chip production. By Thursday, however, sentiment toward ASML had deteriorated. Broader concerns about higher interest rates, combined with worries over CoreWeave’s debt position, weighed on the AI sector.

CoreWeave is a provider of AI cloud services. Over the past few days, both its shares and bonds were heavily sold as investors grew increasingly uneasy about the company’s debt burden. This drew attention to the financing costs associated with the rapid expansion of AI-related infrastructure and raised questions about how quickly AI investment can generate sustainable returns.

Taken together, these market movements suggest that investors are reassessing the AI theme rather than abandoning it. While long-term demand remains supportive, investors focused more heavily this week on the financing of AI investments and any signs that returns may take longer to materialise.