What’s News in Markets: CoreWeave Selloff, Apple Milestone, Borrowing Boom

The episode opens with host Imari Moise celebrating the four-year anniversary of the stock market rally that began in October 2022, with the S&P 500 more than doubling since then. However, this optimism was short-lived as fears of rising interest rates resurfaced after inflation data came in hotter than expected, prompting investors to reassess risk. The concern over rate hikes affected not just stocks broadly, but also the AI industry, which had been borrowing heavily to fuel growth. The week saw significant declines, with the NASDAQ dropping approximately 4.5%, the S&P 500 falling just under 2%, and the Dow gaining about 0.7%. This shift reflected growing investor anxiety about the economic outlook and monetary policy.

The episode identifies CoreWeave as a key example of risk within the AI sector, noting a more than 25% drop in its shares due to concerns about its high levels of debt and financial sustainability. CoreWeave, which transitioned from crypto-mining to renting AI computing infrastructure, has accumulated at least $35 billion in debt and is projected to burn around $80 billion in cash over the next three and a half years. Despite its CEO Jensen Huang defending the company's progress, Wall Street has become more cautious. The decline in shares also affected competitors like Nebias and Iranians, which fell by 25% and 23%, respectively, illustrating the broader nervousness about leverage and debt in the AI industry.

In a positive turnaround for tech stocks, Apple reached a $5 trillion market value, becoming only the second company after Nvidia to reach this milestone. Apple's share price increased by over 2%, defying broader tech sector declines. The episode highlights investor excitement around a new $2,000 foldable iPhone called the iPhone Duo. Pre-orders for this device opened on Friday, with delivery estimates stretching into late January, indicating strong early demand. This comes after signs that other new models, like the iPhone 18 Pro, are experiencing shorter wait times, suggesting a potential boost in sales for Apple amid a sales lull following recent product launches.

The discussion concludes with a focus on the rising debt among investors through margin loans, which totaled $188 billion at Charles Schwab by the end of September—nearly double the amount from the previous year. These loans allow investors to borrow against existing stocks to amplify returns, but also increase risk. The trend is driven by a specific strategy called Long Short Tax Aware Investing, where investors borrow to buy expected rising stocks and short-sell expected falling stocks, primarily to offset taxable gains. Schwab has responded by raising the minimum investment for new accounts from $1 million to $10 million and is developing a more manageable version of this strategy, reflecting confidence that demand will persist. Rival Fidelity has even halted opening new accounts, illustrating industry caution.