The iShares Semiconductor ETF (NASDAQ: SOXX) fell for a ninth consecutive session on Friday, marking its longest losing streak since May 2006. During this period, the fund has lost approximately 14% since October 5 and dropped 9.4% for the week.
Investors are questioning the financing models behind the artificial intelligence buildout, specifically focusing on the cost of capital. The Federal Reserve raised rates to 3.75% to 4.00% in September, and the 10-year Treasury yield reached about 5.09% on Friday, October 16. The Federal Reserve's actions in May 2006, when it raised rates to 5.00% for the sixteenth consecutive time, are cited as a historical parallel for the current market environment.
A key driver of the sector's volatility is the credit situation surrounding CoreWeave Inc. (NASDAQ: CRWV). The cloud provider's bonds slid to about 80 cents on the dollar, yielding more than 15%. The cost of insuring its debt hit a record, with credit default swaps jumping past 1,000 basis points, implying roughly a 60% chance of default within five years.
Within the SOXX holdings, specific stocks experienced sharp declines. Cerebras Systems Inc. (NASDAQ: CBRS) dropped 21.41%, Credo Technology Group Holding Ltd (NASDAQ: CRDO) fell 20.81%, and MACOM Technology Solutions Holdings Inc. (NASDAQ: MTSI) declined 19.94%. Applied Materials Inc. (NASDAQ: AMAT), Teradyne Inc. (NASDAQ: TER), and Lam Research Corp. (NASDAQ: LRCX) each fell between 16% and 18%.
The broader market context includes a significant drop in South Korea's KOSPI index, which fell 14.46% this week, its worst weekly drop since October 2008. Bank of America analyst Vivek Arya compared current valuations to the aftermath of the dot-com bubble, noting that Nvidia Corp. (NASDAQ: NVDA), Broadcom Inc. (NASDAQ: AVGO), and Micron trade at about 13 times forward earnings, a range associated with Cisco Systems Inc. (NASDAQ: CSCO) after its bubble burst.
