Jensen Huang called AI demand 'off the charts,' and chip stocks still had one of their worst days of the year

For most of this year, comments from Nvidia's chief executive about surging demand have been fuel for chip stocks. On Thursday, the same kind of comment arrived with a caveat attached, and the sector had one of its roughest sessions in months.

The Philadelphia Semiconductor Index fell 6.72% to 10,731.98, according to Yahoo Finance data. Earlier in the session, the index touched its lowest level since July 29, according to Bloomberg data cited by BBX. The drop was broad: Lam Research fell 11.76% to $230.15, Advanced Micro Devices lost 8.1% to $507.93, Nvidia dropped 4.4% to $212.21 and Broadcom fell 4.31% to $323.24, all according to Yahoo Finance data.

What Huang said

Speaking to CNBC at Nvidia's GTC conference in Berlin, Jensen Huang described demand for neoclouds, the specialized providers that rent out AI computing power, as "off the charts." He then pointed to the constraint. "What is missing in the middle is the working capital to fuel that growth," Huang said, according to TipRanks' account of the interview, adding that he expects the funding gap to be resolved over time.

Investors focused on the second half of that message. Neocloud stocks have been under pressure this month over heavy borrowing; CNBC reported on Wednesday that CoreWeave's shares were down 36% in October and that spreads on its credit default swaps were widening. Thomas Hayes, chairman at Great Hill Capital, cited Huang's remarks about a financing bottleneck for smaller AI companies as one contributor to Thursday's selling, Reuters reported.

Lam Research and the equipment makers

Lam Research was the sector's biggest decliner among large chip names. The chip-equipment maker fell 11.76% after its results, which Reuters cited as a drag on sentiment across semiconductors. Its outlook for the December quarter came in roughly in line with Wall Street expectations, and management cited supply constraints, according to The Closing Print's earnings tally. For a stock priced for upside, in line was not enough.

Memory and storage names fell hard too. Western Digital lost 6.43% in the regular session, according to Yahoo Finance data, before reporting results after the bell. Bloomberg data cited by BBX also showed sharp declines in optical-networking suppliers such as Coherent and Lumentum during the session.

The bigger picture: who pays for the build-out

Thursday's selling was about the cost of AI more than demand for it. Meta fell 7% after reporting negative free cash flow and announcing a new class of non-voting shares that could help it raise money for AI investment, Reuters reported. That raised the prospect that the biggest buyers of AI chips will increasingly fund their purchases by selling stock or borrowing, rather than from spare cash.

"The big question" is "the (return on investment) on all the spending," Matthew Maley, chief market strategist at Miller Tabak, told Reuters.

For chipmakers, that matters because their recent growth depends on customers continuing to spend at record levels. Huang's point was that the orders exist. The market's question on Thursday was whether the money to pay for them will keep flowing at the same pace, and at what cost.

There was a partial offset in the bond market. The 10-year Treasury yield fell to 4.952%, its biggest one-day decline since March 2023, according to Dow Jones Market Data. Lower yields reduce borrowing costs for capital-hungry companies, but on Thursday they reflected investors seeking safety rather than any change in the Federal Reserve's outlook.

What to watch

The next test arrives quickly. Intel reports on October 29, according to The Closing Print's calendar, and the Fed announces its rate decision the same week. Anthropic, one of the largest buyers of AI computing capacity, could publicly file its IPO prospectus as soon as Friday, which would give investors a detailed look at how much one major AI developer has committed to spend on infrastructure.