Hyperscalers’ rising debt and eroding free cash flow weigh on AI-linked stocks, while semiconductor volatility persists.
The AI trade is under scrutiny as hyperscalers, including Alphabet, face growing concerns over cash flow erosion and surging debt levels. Commerzbank highlights that euphoria around the ‘Magnificent 7’ has stalled, shifting focus to financial vulnerabilities in the sector.
Semiconductor and memory stocks, tracked by the SOX and KOSPI indices, experienced sharp volatility after hyperbolic gains. While Alphabet’s results reinforced the ‘hardware winners’ narrative, they also underscored risks from weaker peers struggling with similar financial pressures.
Credit default swaps for four of the top five hyperscalers now trade above the CDX.IG index, despite stronger credit ratings, signaling heightened risk perceptions in the sector.