After previous day's slump, trading is quieter among AI shares

By Caroline Valetkevitch

NEW YORK, Oct 23 (Reuters) - Big AI stocks were mixed on Friday, a day after the biggest decline in the Nasdaq Composite Index in four months, giving investors a welcome respite as they look forward to more information on Anthropic's forthcoming IPO and a further wave of earnings over the next week.

Meta Platforms META.O, the center of Thursday's storm, was fractionally lower following Thursday's 7% decline. The operator of social media networks and major AI investor said in its earnings report this week that it would create a new class of shares in part to raise money for further capital spending, which was taken as evidence that the next leg of the AI buildout will be costly for shareholders.

Other major AI players were mixed on Friday, with SpaceX SPCX.O, Oracle ORCL.N and Dell Technologies DELL.N up 1% to 2% and Nvidia NVDA.O, Alphabet GOOGL.O and Amazon AMZN.O down less than 1%. Big semiconductor stocks were mostly higher after their largest decline since the summer on Thursday.

Credit default swaps tracking the perceived risk of default at the biggest AI players were mostly modestly lower, with Meta's five-year CDS spread trading 0.3% narrower at 123, according to LSEG data. The swaps enable investors to bet on a default using contracts typically with terms of five or 10 years, though contracts frequently change hands for the purposes of hedging positions and betting on near-term market moves.

Thursday's deluge and the day-after calm is the latest sign of indirection in a market that has hovered near record highs without breaking out, said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

"To some extent, we're seeing the market tread water over a longer period of time because every sell-off has been met by buyers and every point upward has been met by sellers," Meckler said.

The Nasdaq .IXIC was barely changed on Friday afternoon.

Credit-default swap premiums, reflecting the annual cost borne by the swap purchaser in thousands of dollars, have risen over the past year with concern about the risks being taken on by large AI spenders. The premiums rose on Thursday after Meta's decision to sell more stock, as much of the buildout to date has been financed through debt issuance.

The concerns around AI spending and investment returns have added to the market's volatility since Treasury yields rose sharply in August, which changed the economics of investing and bond issuance, given the increasing attractiveness of a higher risk-free rate.

It's been "a very volatile week," said Art Hogan, chief market strategist at B Riley Wealth in Boston. "There's no doubt at some point in time that the higher inflation moves, especially if driven by unsustainably higher energy prices ... would have to show up in corporate earnings. It hasn't yet, but that's the concern. And market participants are trying to position for that."

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Shares of neoclouds, smaller companies tied to AI data centers and other infrastructure projects like CoreWeave CRWV.O, have dropped due to anxiety over their future. Their performance of late has also raised talk on Wall Street that capital is growing scarce - which stands to raise costs further and potentially raise funding issues down the road.

Even so, many investors remain positive on the sector, where giant AI lab Anthropic is expected to publish its IPO prospectus in coming days and Alphabet, Amazon AMZN.O and Microsoft MSFT.O are expected to report earnings next week.

"In general, AI news in terms of revenues continues to be very strong, it's just at what cost and how long that growth is sustainable," Meckler said. "We really haven't gotten to the point of the market sort of focusing on winners and losers. It's been one big sector trade every day."