AI infrastructure stocks tumble. Here's a few reasons for the sell-off
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. AI stocks are leading the market lower Wednesday after the September consumer price index came in hotter than expected. Headline CPI increased 3.7% year over year, while the ex-food and energy core rate gained 2.6%. Looking month-over-month, headline CPI rose 0.6% on a seasonally adjusted basis, with over half of the all-items increase tied to a 9.1% gain in the gasoline component. This illustrates the inflationary pressure stemming from the ongoing conflict in the Middle East, particularly through higher energy prices. The Nasdaq is down 2% in late afternoon trading, while the S & P 500 dropped more than 1% Bond prices initially sold off on the print, sending yields sharply higher. (Later in the day, yields reversed slightly into the red.) According to the CME FedWatch tool, the market odds of an interest rate rise at the central bank’s upcoming October meeting increased to roughly 37% for a 25-basis-point rate hike, up from 22% on Tuesday and about 18% one week ago. More rate hikes could slow down the economy, explaining why investors are rotating into defensives within healthcare and consumer staples, and out of economically sensitive areas like banks and industrials. Tech stocks are getting hit, too. The prospects of more rate hikes played into our decision earlier in the day to exit Honeywell Technologies and build back some cash. AI infrastructure names could hit a slow patch if the cost of capital rises too quickly. Stocks like GE Vernova and Eaton were some of the biggest laggards in the portfolio Wednesday. Broadcom CEO Hock Tan warned on Monday at a conference in Singapore that access to capital could become the next industry constraint. Semiconductor stocks remained a source of market pain. The iShares Semiconductor ETF, or SOXX, fell another 4% on Wednesday, extending its losing streak to seven consecutive sessions and bringing its total decline over that stretch to nearly 12%. This is the worst SOXX losing streak since May 2025. The last time the SOXX fell for eight sessions in a row was September 2015. One more development to watch: Anthropic is expected to share its updated financials with a group of institutional investors on Wednesday. While there have been no leaked numbers yet, the market action suggests to us that there could be some disappointment. If we do see better-than-expected financials from the AI lab, that could take some of the pressure off chip stocks and other AI infrastructure-related names. Truist initiated coverage of Qnity with a buy rating and a $170-per-share price target, implying 38% upside to Tuesday’s closing price of just under $123 per share. The analysts said the $25 billion market cap company’s array of materials for chip manufacturing and packaging is “supportive of durable above-market growth.” The bullish call followed a Barclays initiation and $211 price target on Monday. It also started Qnity with a buy rating alongside several other U.S. chemical companies, including fellow Club names DuPont and Linde . It’s good to see Qnity get more positive analyst coverage, though we would prefer technology- and semiconductor-focused analysts write about it more often. We haven’t forgotten about Qnity, which has fallen about 8% since the end of July and 31% from its June high. But the stock often trades with semiconductor capital equipment stocks like Applied Materials and Lam Research , and the portfolio has plenty of semiconductor exposure via Nvidia , Intel , Micron , and Broadcom. Watch our video tour of Qnity’s labs outside Boston to see why the company is so important to the chip industry supply chain. There are no major earnings after the bell . On Thursday morning, Club name Bank of New York reports. We’ll also hear from Taiwan Semiconductor Manufacturing , Schwab and Prologis . On the data side, Thursday brings September retail sales and the second part of the government’s inflation series, the September producer price index. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
