The AI boom stumbles

PodcastUnhedgedKatie MartinOct 15

A broadly hot CPI report and concerns about the AI boom's durability frame the market discussion. Technology credit risk is rising, while one speaker warns that an AI-driven slowdown alongside persistent inflation could create a setting in which bonds struggle. Speakers also discuss possible defenses and diversification, but caution that markets with little direct AI exposure could still be hit by weaker global growth.

Artificial Intelligence Inflation Market Volatility

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Key Takeaways

Anthropic’s third-quarter revenue rose nearly 50% to $16.8 billion, but growth had slowed and the result missed some investors’ expectations; separately, credit fund managers described AI profitability as unresolved as credit default swaps rose across technology bonds. Together, the bullets show concerns spanning both AI-company growth expectations and the ability of indebted tech companies to repay their debt.

CoreWeave’s bonds weakened as its credit default swaps reached 1,100 basis points, signaling that investors were paying substantially for protection against possible default; one market observer said weaker data center credits may struggle to survive. CoreWeave’s co-founder wanted the company to sell bonds to insurers, whose annuity premiums provide capital they can invest.

The latest CPI report showed broadly elevated inflation across goods and services. One speaker argues that if an AI bubble pops while inflation remains a problem, the loss of a growth source could create stagflation, in which bonds may not perform well; the speakers nevertheless discussed high-quality government bonds, including five-year bonds, as a possible defense if the AI trade falters.

TECHNOLOGY

Anthropic Growth — Anthropic's third-quarter revenue rose nearly 50% to $16.8 billion. Growth had slowed from earlier in the year, and the result fell short of some investors' expectations.

“Yesterday, they told investors that third quarter revenue had risen nearly 50% to $16,800,000,000…”—

ECONOMY

Broad CPI Pressure — The latest CPI report was broadly hot, with inflation across goods and services and elevated readings in multiple categories. That contrasted with August, when a few categories, including wireless services, drove the increase.

“It was not only a hot CPI inflation report. It was a broadly hot inflation report…”—

Stagflation Risk — One speaker argues that an AI bubble popping would remove a source of growth while inflation remains a problem. In that stagflationary backdrop, bonds may not perform well.

“I will say... I will continue to not give investment advice by saying, if the other side of this is stagflationary Mhmm…”—

MARKETS

South Korea Selloff — South Korean stocks fell sharply: the overall market dropped 8%, SK Hynix fell 11%, and Samsung Electronics lost 9.5%. Losses were concentrated in the country's semiconductor-heavy market.

“So South Korean stocks, we all know the South Korean stock market basically is semiconductors. Yeah. And specifically memory chips. Yeah. It's not even that broad as semiconductors…”—

Data Center Credit — Tech-related bonds, particularly those issued by CoreWeave, weakened. One market observer said data center bonds face a test in which weaker credits may struggle to survive.

“So another thing that makes me again, I don't like this is that techie bonds have fallen…”—

Annuity Funding — CoreWeave's co-founder said he wanted the company to sell bonds to insurers. Insurers can invest annuity premiums: customers pay a lump sum for retirement income over time, and the insurer invests that capital.

“He gave an interview to the Feet in which he said that he really wants Core Web's bonds to get what we call an investment grade rating, is kind of…”—

AI Market Jitters

Katie Martin and Rob Armstrong open with sharp losses in Asian technology shares and explain why investors are turning cautious despite an inflation report that would usually pressure bonds.

CoreWeave Credit Risk

The hosts examine falling data-center bond prices and CoreWeave's effort to attract insurers, questioning whether speculative AI infrastructure debt belongs in conservative portfolios.

CDS Signals and AI Profits

Rising credit-default-swap costs point to concern about tech borrowing, but Armstrong argues the durability of AI profits—not financing mechanics—is the decisive question.

Nasdaq Pullback Risk

Armstrong says the recent decline has not yet broken the Nasdaq's sideways pattern, while both hosts discuss preparing for risk without assuming a crash is underway.

Bonds as a Defense

The hosts consider government bonds, especially shorter maturities, as a potential hedge, while warning that persistent inflation combined with weaker growth could undermine bonds too.

Global Stocks and Growth

Low-tech markets such as the UK may offer less direct AI exposure, but Armstrong warns that commodity- and bank-heavy economies could still suffer if an AI bust slows global growth.

Avoiding the Big Guess

Martin calls the selloff a flutter rather than a major break, and Armstrong recommends avoiding attempts to time the AI trade's collapse and instead treading carefully.

Chicken-Fed Norwegian Salmon

Martin criticizes Norwegian salmon farms for feeding chicken to fish, and the hosts joke about consumer reactions and the unsettling implications of the practice.