After a brutal week for artificial intelligence-related stocks, the sector found some footing on Monday. CoreWeave and major chipmakers bounced back as US Treasury yields pulled back from recent highs, giving investors a moment of relief. But the calm may be short-lived: the next big test arrives with a wave of mega-cap tech earnings, which will show whether investors are still willing to pay premium prices for AI growth.
What happened last week?
Last week, a hotter-than-expected inflation reading rattled markets. That pushed Treasury yields higher, which is a particular problem for growth-oriented stocks. Higher yields make future profits less valuable today, and they hit "long-duration" assets—companies whose value depends on earnings expected far in the future—hardest. AI stocks, which trade on the promise of explosive growth, are classic long-duration bets.
The pain was especially acute for CoreWeave, a "neocloud" provider that rents out AI computing power. The company's stock slid more than 25% last week as investors zeroed in on its reported $50 billion debt load. The concern: if interest rates stay high, the cost of servicing that debt rises, and the economics of building massive data centers become less attractive.
On Monday, however, CoreWeave rebounded, rising 3.4% after Goldman Sachs upgraded the stock. The move came as credit markets also calmed. According to Tradeweb, the yield on CoreWeave's 2031 bond—a key measure of how risky lenders think the company is—eased, suggesting some of the panic had subsided.
Why yields matter for AI stocks
To understand why Treasury yields matter so much for AI stocks, it helps to think about how investors value companies. When you buy a stock, you're buying a claim on future profits. The higher the risk-free interest rate, the more you discount those future profits. For a company like CoreWeave, which is investing heavily today in hopes of huge returns tomorrow, a rise in yields can slash the present value of those future earnings.
There's also a funding angle. AI infrastructure is capital-intensive. Companies like CoreWeave borrow heavily to build data centers packed with expensive chips. When rates rise, their interest costs climb, squeezing margins and making it harder to justify new projects. That's why the debt load became such a focus last week.
But Monday's easing in yields offered some breathing room. Lower yields reduce the discount on future profits and ease borrowing costs, which is why chipmakers and other AI names joined CoreWeave in the rebound.
What to watch next: big tech earnings
The bigger question now is whether the AI trade can hold up as the biggest technology companies report quarterly results. These mega-cap firms—think the likes of Microsoft, Alphabet, and Amazon—have been the primary drivers of the AI boom, pouring billions into data centers and AI models. Their earnings will give investors a read on whether that spending is translating into revenue growth.
If these companies report strong numbers and upbeat guidance, it could reassure investors that AI growth is real and worth paying for. If they disappoint, or signal that AI investments are taking longer to pay off, the selloff could resume.
As we noted in our preview of this week's key market drivers, the combination of earnings and yields will likely set the tone for the broader market. Investors should also keep an eye on how credit markets behave, especially for companies with heavy debt loads like CoreWeave.
What it means for everyday investors
For ordinary investors, the recent volatility is a reminder that AI stocks are not a one-way bet. They can swing sharply on macro data, interest rate expectations, and company-specific news. The rebound on Monday is encouraging, but it doesn't erase the underlying risks.
If you own AI stocks or funds that hold them, be prepared for continued ups and downs. The next few weeks of earnings will be crucial. If you're thinking about buying, remember that high-growth stocks can fall just as fast as they rise, especially when rates are moving.
Diversification remains a key tool. While AI has been a powerful driver of market gains, it's not the only game in town. A mix of sectors and asset classes can help cushion the blow when one area stumbles.
Finally, keep an eye on Treasury yields. They're a barometer for the entire growth-stock complex. If yields keep falling, AI stocks may find more support. If they spike again, expect more turbulence.
In the meantime, the earnings season will provide a clearer picture of whether the AI boom is built on solid fundamentals or just hype. As always, focus on the long term and avoid making impulsive decisions based on a single day's move.
