AI-fueled tech selloff in focus; Western Digital reports - what’s moving markets

 Futures linked to the main U.S. stock indices are mixed, after tech stocks sank in the prior session on growing jitters over the artificial intelligence trade. Anxieties surround the hunt for the capital needed to fund Silicon Valley’s rapid AI buildout. At the same time, fears of intensifying violence in the Middle East keep oil prices elevated, while ructions in French bonds also hit sentiment. 

1. Futures mixed

U.S. stock futures hovered around both sides of the flatline on Friday. By 03:01 ET (07:01 GMT), the S&P 500 futures contract was mostly unchanged, while Nasdaq 100 futures had risen by 45 points, or 0.2%. The Dow futures contract slipped by 149 points, or 0.3%.

The main averages were broadly lower on Thursday, with the Nasdaq Composite slumping by 2.6% -- the worst day for the tech-heavy index since June.

In a note to clients, analysts at Deutsche Bank said "the wobbles of recent weeks all collided at once."

First, the analysts pointed to stress in French bonds as the country grapples with social unrest and a precarious fiscal position. Yields in French debt climbed sharply, sending the spread between French and German bonds, a key European benchmark, up to its biggest daily widening since the early days of the COVID-19 pandemic in March 2020.

While these moves were part of a "clear risk-off pattern," they did not spark a global selloff in bonds, the analysts noted.

2. AI anxieties rise

Instead, investors actually flocked to the relative safety of U.S. Treasuries, pushing the benchmark 10-year yield back down below 5%. Yields tend to move inversely to bond prices.

Traders were spooked by Meta Platforms’ decision to roll out a new class of shares, partially as a strategy to help raise funds for its AI ambitions. Like other Big Tech names, the Instagram-owner has laid out plans to spending hundreds of billions on developing its AI capabilities, but have had to incur mounting debt loads to do so.

With borrowing costs expected to rise in the coming months, tech groups are anticipated to sell stock to underpin the next AI spending round. Fears have abounded that such dilution could dent share prices. Meta’s stock price slipped 7%, its largest decline since July.

Further compounding these worries, Nvidia CEO Jensen Huang told CNBC that there is "a scarcity of capital" for the AI buildout, adding "the demand for capital is much greater than the availability." Nvidia shares retreated, as did those of peer Advanced Micro Devices. A tracker of the semiconductor industry shed 6.7%.

Here’s how analysts at Yardeni Research summed up the situation: "These companies’ once ample free cash flows have turned negative, forcing them to borrow. Concerns have mounted that they are driving up financing costs and won’t generate sufficient returns to justify their huge investments. Now, another concern is moving to the forefront: Does enough capital even exist to finance everyone’s ambitious AI spending plans?"

3. Western Digital falls despite robust AI-powered earnings

Seemingly emphasizing the concerns swirling around the AI industry, shares of Western Digital fell by more than 6% in extended hours trading despite the memory-chip manufacturer logging solid quarterly returns.

Memory chips are viewed as a central components in AI systems, fueling intense demand for -- and a subsequent shortage of -- these processors. As a result, prices for memory chips have soared, with Western Digital saying its blended average selling price per terabyte of storage gained 28% during its fiscal first quarter.

Revenue and profit surged to $4.38 billion and $1.78 billion, respectively. Both surpassed Wall Street estimates.

Yet the stock, which has skyrocketed by more than 88% so far this year, still tumbled on Friday, reflecting the rotation out of AI-linked names.

4. Oil rises once again

Further exacerbating the flurry of negative trends confronting markets were oil prices, which have once again risen on escalating geopolitical tensions.

News reports this week have suggested that the U.S. and Israel are considering plans to launch fresh attacks on Iran following the American midterm elections in November. Tehran has vowed to retaliate against any new strikes, potentially by bombarding economic and civilian targets, the Wall Street Journal reported.

Meanwhile, Houthi militants in Yemen have continued to attack sites in Saudi Arabia. On Thursday, state-oil group Saudi Aramco ordered the evacuation of its headquarters in Dhahran near Bahrain.

Traders have been worried that renewed violence in the Middle East could threaten a recent rebound in oil flows out of the region.

By 03:40 ET, benchmark Brent crude futures had gained 0.8% to $114.01 a barrel, after settling at a five-month high of $113.17 a barrel on Thursday.

5. SK Hynix puts plans for Solidigm U.S. IPO on hold

Elsewhere, SK Hynix shares fell on Friday as it put plans on hold for a potential U.S. initial public offering of its subsidiary Solidigm, citing concerns over market conditions and shareholder value.

Solidigm, which specializes in NAND flash memory and solid-state drives (SSDs), had been exploring financing options to expand production capacity and strengthen its competitiveness, SK Hynix said in a regulatory disclosure.

"After comprehensively considering factors such as capital market conditions, the company has decided to discontinue its review of a potential pre-IPO and initial public offering," it said.

The decision follows reports that Solidigm was considering a pre-IPO fundraising round of about 5 trillion won ($3.8 billion).