Dow Jones jumps 550 points, Nasdaq recovers as AI sell-off halts despite high inflation

Benchmark indices on Wall Street had a session marked by recovery from lower levels as dip buyers once again stepped in to halt the sell-off seen in AI and Semiconductor shares. Remarks from Nvidia CEO Jensen Huang on CoreWeave also managed to assuage some nerves.

The Dow Jones ended the session at the highest point of the day, with gains of 550 points, while the S&P 500 and Nasdaq reversed losses to end above the flat line. The S&P 500 gained 0.3%, while the Nasdaq recovered from a drop of as much as 1.4% to end just above the flat line. Gains on the Dow were supported by shares like Walmart and a rotation out of tech names.

Shares of Nvidia, AMD, and other memory chipmakers like Sandisk, Western Digital, Seagate, continued to add to Wednesday's losses but recovered sharply from the lows of the day.

CoreWeave, the major reason behind the recent Wall Street sell-off in AI stocks also recovered from the initial lows to end the session with gains of over 6% after Nvidia CEO Jensen Huang said that he remains optimistic on the company and that their cost of capital is actually coming down.

It must be noted that Nvidia is the second-largest shareholder in CoreWeave, with a stake of close to 10%.

While the stock ended higher, concerns surrounding its debt continue as Credit Default Swaps, or the insurance taken against debt default, are now pricing in a 60% chance of CoreWeave defaulting on its repayment obligations within the next five years. The "yield to maturity" on its 9.75% bond due in 2031 surged to as high as 15.78%, while swap spreads crossed the threshold that generally indicates "distress" levels.

"Two questions matter. Is demand for AI real? Yes," Manish Singh at Crossbridge Capital told Bloomberg. "Are we going back to working and using software as we did before AI? No. The structural opportunity is real, but that does not mean every company building the infrastructure will generate attractive returns for investors."

All eyes today will be on Fed Chair Kevin Warsh as he will be engaging in a fireside chat with the IMF MD Kristalina Georgieva in Thailand at 9 AM Indian Time.

Indices on Wall Street ended higher despite a hotter-than-expected wholesale inflation print with the September PPI rising 1.3% month-on-month, the highest monthly increase since March 2022 and well above the 0.6% estimate. On a year-on-year basis, the increase was 6.3% compared to estimates of 5.5%. The probability of the US Federal Reserve raising interest rates by 25 basis points in October now stands at 28%.