The AI selloff changed address this week. It started in stocks. By Thursday it was in the credit market, where insuring Oracle's debt cost a record and CoreWeave's bonds traded near 77 cents on the dollar.
Meanwhile, TSMC says AI demand is "extremely robust."
And inflation ran hot, yet bonds rallied. Late Thursday, Fed Chair Kevin Warsh declined to signal his next move, and rate-hike bets fell again overnight.
That is the setup for Friday. Demand is holding. The money behind it is getting more expensive.
Let's get into it.
The AI trade's stress moved from the stock screen to the bond desk
On Wednesday, CoreWeave (CRWV) fell 15.5% and Oracle (ORCL) fell 8.8%. Late Wednesday, the cost of insuring Oracle's debt hit a record. Its five-year default swaps rose 26 basis points to 288.
CoreWeave is the sharper case. Its swaps passed 1,000 basis points, per LSEG. Its 2032 bonds traded near 77 cents on the dollar Wednesday. Protection near 1,000 basis points implies better-than-even odds of default within five years under standard pricing assumptions. That is a market price, not a forecast, but it tells you what lenders want to be paid.
Thursday brought a bounce, not a fix. CoreWeave hit a 52-week low of $59.51, then closed 17% above it, up 5.9% on the day. Oracle gained about 3%. Corporate bond funds rose with Treasuries.
Private money is still paying up. AI cloud startup Modal raised $750 million at a $15.75 billion valuation, more than triple its May valuation. Public lenders want more for AI risk. Private investors are still bidding for it.
The market signal?
Much of the AI buildout runs on debt, so record default insurance raises the cost of every new data center. Watch whether broad credit spreads follow the single names. If spreads stay calm, this is a leverage problem at the edges. If they widen, it isn't.
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Inflation ran hot. Bonds rallied anyway.
September consumer prices rose 0.6% in the month and 3.7% from a year earlier. Core prices rose 0.3% for a second month, a tenth above forecasts. Then producer prices jumped 1.3% on Thursday. Economists surveyed by Dow Jones expected 0.6%. It was the biggest rise since March 2022, and energy did much of the work.
The bond market read it differently. The 10-year yield touched about 5.33% after CPI, then closed Wednesday at 5.19%. On Thursday it fell 9 basis points, to 5.10%. Stocks rose with bonds. The Dow rose about 1.1% and the S&P 500 about 0.3%. The Nasdaq ended near flat after falling as much as 1.4%.
Rate bets cooled too. Kalshi's October hike contract jumped from 18 cents to 55 cents after CPI. It touched 37 cents after PPI, then traded at 28 to 29 cents into Thursday afternoon. Fed Vice Chair for Supervision Michelle Bowman said Wednesday: "I don't feel any urgency for taking further action at this point."
Then the Fed chair weighed in. Late Thursday in Bangkok, Kevin Warsh declined to signal his vote: "I don't prejudge meetings." Kalshi's October contract slid from about 28 cents to 14 cents overnight, and traded at 13 cents early Friday.
The market signal?
Two readings compete. One says inflation is broadening and the Fed isn't done. The other says tighter credit, including the AI debt selloff, is doing some of the Fed's work. The long end is voting for the second, and hike bets fell in the hours after Warsh spoke. He gave markets nothing new to trade on before the Fed's quiet period starts Saturday. From here, the bond market does the talking.
TSMC says AI demand is fine. Its CEO is still planning carefully.
"Extremely robust." That's how TSMC (TSM) described AI demand on Thursday. The quarter backed it up. Revenue hit $46.72 billion, above the top of its own $44.6 billion to $45.8 billion range. Net income rose 68.7% to a record. Fourth-quarter guidance implies about 14% growth from the third quarter at the midpoint.
Then CEO C.C. Wei added a second line: "we are being prudent in our business planning going into 2027." He said consumer and price-sensitive markets are being hurt by rising costs. Gross margin slipped to 66.4% from 67.7%, which TSMC tied mainly to the early 2-nanometer ramp.
ASML (ASML) said much the same from further up the chain. Its planned capacity for 2027 and 2028 "will not fully meet the demand of our customers."
Read that next to Daybreak. Suppliers can't build fast enough. Some of the companies renting out AI computing pay record prices to insure their debt. Demand is not the weak link. Funding is.
The market signal?
Wei's caution is about consumers, not AI. Still, "prudent" from the world's biggest contract chipmaker deserves a watch. TSMC's 2027 spending plan, usually given in January, will show whether "prudent" reaches the AI side.
You’re Being LIED To About The Iran War
Forget EVERYTHING you’ve heard about the Iran war.
Especially the reasons why we’re bombing the country.
More Saudi oil, fewer safe ships
Supply is coming back. Saudi Arabia produced 8.30 million barrels a day in September, up from 5.97 million in August, per the IEA. OPEC's secondary sources put the Saudi gain well under 1 million barrels a day, so treat the size with care.
The sea lanes are getting worse. The container ship GFS Pride sank. Singapore's maritime authority says a projectile hit it. Iran's Revolutionary Guards say it hit a mine, and Washington hasn't attributed the attack. Polymarket's contract on a U.S. announcement ending the Iran blockade by Oct. 31 fell from 12.5 cents Wednesday to about 5.5 cents by Friday morning. That is traders' pricing, not a policy forecast.
Brent fell faster than U.S. crude. Its premium shrank from about $11 to about $9 in hours. One possible reason: a U.S. official told Reuters that Washington is weighing easier sanctions on some shadow-fleet tankers.
Diesel is where the shock reaches the economy. Household fuel oil prices rose 15.3% in September and 74.2% from a year earlier. The IEA says gasoil will stay tight "well into 2027." On Thursday, a Ukrainian drone set Russia's Ryazan refinery on fire, described as Kyiv's first strike on a Russian energy site since the unconfirmed Oct. 11 truce.
The market signal?
Crude is pricing Gulf barrels coming back. Diesel is pricing refineries under fire. Watch the Brent premium over U.S. crude. A narrower gap says Gulf supply and sanctions relief are winning. A Washington decision on shadow-fleet tankers could move Brent before OPEC+ meets Nov. 1.
Bitcoin should have liked Thursday morning. It didn't.
Overnight Wednesday, the odds of an October hike fell from about 50% to about 26%, per CME FedWatch. If bitcoin traded on the Fed, that was good news. Instead it slipped below $81,000 late Wednesday and traded near $80,300 Thursday morning.
The better match was Seoul. Bitcoin fell in the same hours that Korea's Kospi dropped 7.6% and tripped a circuit breaker. Overlap in time doesn't prove cause. But the move looked more like AI-risk selling than a rates trade.
Positioning made it worse. About $950 million of crypto positions were liquidated in 24 hours, per CoinGlass, and about $876 million were bets on higher prices. U.S. spot bitcoin funds lost $261.4 million on Wednesday, reversing $175.7 million of inflows the day before, per Farside. Ether fell about 5% to a two-month low.
Thursday reversed some of it. U.S. bitcoin funds took in a net $5.1 million, per Farside, while ether funds had a second day of outflows. Bitcoin was back near $82,100 early Friday, as the Kospi rebounded 2.05%.
The market signal?
Bitcoin moved with Seoul both ways: down on Wednesday night, back up on Friday. In this tape, it trades as part of the AI risk complex, not as a hedge against it. The test that would break the link is a day when chip stocks fall and fund flows stay positive. That hasn't happened yet.
Private credit's exit is a queue, not a run
A Fed staff note mapped the funds that sell private credit to individual investors. The riskiest corner is perpetual non-traded BDCs, with about $307 billion in assets. At the end of last year, private credit made up 93.4% of their portfolios. Average leverage was 0.90 times. Short-term liquid assets were 0.2% of holdings.
That 0.2% is the mechanism. With almost no cash on hand, these funds handle withdrawals by capping them, usually at 5% of shares a quarter, and pay requests pro rata. Stress shows up as a line at the door, not as fire sales.
The line is shrinking, slowly. Requests fell at 13 of 15 non-traded BDCs that Fitch tracks. They still averaged 9.8% of shares, and nine funds remain over the cap. Blue Owl Technology Income Corp. drew requests for 39% of its shares. Fitch expects "several quarters" before average requests drop below 5%.
The market signal?
These funds can't sell into a selloff, so they ration exits instead. Oct. 30 matters: Blue Owl Credit Income Corp. expects to fill about 30% of requests, and Apollo (APO) plans to start publishing loan-by-loan credit marks. If this week's credit stress spreads past AI names, the queue is where it shows up first.
AI CEO Issues Code Red: Prepare for Meltdown
The CEO of this AI company (click here to get the name, 100% free) just issued a CODE RED in an internal memo…
Warning his employees that they’re dealing with a critical situation.
Another company executive even implied they might need a government bailout.
And now Jim Rickards is predicting this company is about to go bust, in a full-blown AI meltdown that could be 10 times bigger than Lehman Brothers.
- The Fed goes quiet. The credit desks don't.
- Today: Import prices at 8:30 a.m. ET and industrial production at 9:15 a.m. Truist (TFC), M&T (MTB), Citizens (CFG) and Regions (RF) report. Ohio's deadline for 10 platforms to confirm in writing that they've stopped offering sports contracts also lands. Weekly bitcoin options expired early Friday.
- Saturday, 12 a.m.: The Fed's quiet period begins and runs through the day after the Oct. 28 decision.
- Sunday: Band hosts a Brazil runoff debate, a week before the Oct. 25 vote.
- Tuesday, Oct. 20: The SEC's comment deadline on its crypto asset rule.
- Wednesday, Oct. 21: A 20-year Treasury sale, the first long-bond test since this week's rally.
- Oct. 27-28: The Fed meets. Nov. 10 brings October CPI and TSMC's October sales.
- The market signal?
- Is the bond rally a growth scare or a sign the Fed is nearly done? A weak 20-year sale would undercut it. Wider spreads on AI borrowers would point to a growth scare. Either way, the Fed stays silent.
That's it for today's Slate. Chipmakers say they can't build enough. Lenders say some buyers are riskier than they thought. Bonds shrugged off hot inflation. This week put the AI story's weak link in the financing, not the demand. Have a great weekend.
Today's reply prompt: Is the AI selloff a funding problem or a demand problem? Hit reply and tell us which, and why.
3 STOCKS OUR SIGNAL ENGINE SAYS TO WATCH CAREFULLY
Three stocks. Three signals. Two weeks later, the story changed.
On September 2, we published three market questions around KLAC, HPE and PG&E.
Two weeks later, every one of them produced new evidence.
One company delivered record revenue and raised its outlook.
Another saw weakness spread across its entire peer group.
And in the third, a market risk that had only been showing up beneath the surface suddenly became explicit.
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