We have seen AI stocks fall this hard twice before, and each time the reason was different.
In January 2025 the worry was demand. China’s DeepSeek showed it could build a capable AI model for a fraction of the usual cost, and investors wondered whether the world needed so many expensive chips. Nvidia fell 17% in a single day.
In June and July this year, the worry was a glut of chips, made much worse by forced selling due to overleveraging.This time, bond prices went up instead. That points to a flight to safety. Investors are selling risky assets and piling into government bonds, and the extra demand pushes bond prices up. Their worry is that some of the money lent to AI companies could go bad. And if it does, who is going to fund the AI build-out?
The credit market is saying the same thing. A credit default swap is like an insurance policy against a company failing to repay its debt , finally the VanEck Semiconductor ETF (SMH), which is heavy in AI chip stocks, has fallen 17% from its peak on 5 October. CoreWeave, which rents out AI computing power, is down nearly 40% in a month. Meta lost 7% in a single day after its results.
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