Morning Bid: AI's $3.2 trillion selloff

This transcript was produced with AI technology that converts speech to text. The text is not always reviewed or edited by Reuters journalists and some errors may occur. Today, markets are reeling after investors wiped $3.2 trillion off US stocks in one day as fears spread that Democrats will apply the brakes to AI. Speaker 2: And there are doubts about whether Anthropic's planned blockbuster IPO will go ahead this month. Speaker 1: While job growth is expected to have picked up, but wages are not. Speaker 2: This is Reuters Morning Bid, bringing you unfiltered market news and analysis straight from the Reuters newsroom. I'm Peter Devlin in London. Speaker 1: And I'm Elena Casas. It's Friday, November 6. So, Peter, 3.2 trillion. That's how much Wall Street lost in valuation in just one session on Thursday, as markets start to panic about the prospect that Democrats are going to seriously rein in the build-out of data centers. Now, of course, the AI nerves have been going on for a while. The peak was back on October 5. But has something really changed here, where we've pivoted from sell AI or perhaps sell overly indebted data providers to traders starting to sell across the board. Speaker 2: Well, it is an AI-fueled bloodbath out there, reminiscent of sell-offs we saw in 2008 and 2001. But as you said, the sort of fear is that the data center slowdown is real. So, that means that all those earnings expectations that we had in the past few weeks that sort of held up these mammoth valuations and were the cornerstone of the bullish argument just no longer really matter in terms that they need to be reset. And that means that investors have no clarity and have no idea when they will be reset. So, at the minute, you just have to de-risk. Speaker 1: Those data center providers that have been under pressure since the start of October have seen the worst of this, haven't they? CoreWeave's lost more than half of its value since the beginning of October. So, this is investors really questioning not only the amount of debt that's been taken on to build data centers, but whether they'll be built at all. UBS say about a 30% of planned data center build out in the US between now and 2028 is happening in states where someone, a senator or a governor has just been elected, who's a Democrat who says they're going to block that build out, that they're going to impose a moratorium. And investors are starting to realize that Democrats might be serious about this and also that they're responding to a tidal wave of public opposition to data centers, to the cost of electricity, to pollution that's caused by them, to the amount of water that they use. And they're going to have to take public concerns very seriously. And so are investors, aren't they? Speaker 2: Well, I'll play a bit of devil's advocate here because I'm sure a lot of investors will be thinking about coming in and buying the dip that say that it's more difficult to build a data center now. But, if there is a productive case to build one, then it will be built. Also, I've seen a bit of whispers on social media pointing out a bit of a dialing back on rhetoric from those Democratic senators in Texas about pulling back some of their speech about suspending those data center build-outs. Speaker 1: You're right that Democrats could get nervous about the consequences for the wider economy if they do follow through on promises to block data centers. Of course, there's two main engines that have driven the US economy this year. One is consumer spending, which is mostly being pushed by wealthier consumers who feel that they're able to keep spending money because they own stocks and those stock valuations have been so high. And the other, of course, is the build-out of AI infrastructure itself. So the problem is that if you hit the brakes here, it's not only AI companies that will suffer, it's the whole of the US economy. Speaker 2: Well, we saw that yesterday in the sell-off. No one was spared. We saw Nvidia being hit, Walmart Looking closely at Nvidia, though, it was particularly hit hard. We saw it wipe out its entire gains for this year. Also buried within the headlines a bit is that key Republican senators want to have a briefing with Nvidia CEO, Jensen Huang. This is over dealings he's had with Megaspeed International, who are reportedly under investigation due to China's spying allegations. So, if the sort of fear is that as Democrats come more into power, more of these investigations will increase, so, I'm sure that's a hit on sentiment as well. Speaker 1: So, another company that's hearing some of these nerves is Anthropic. Of course, we're expecting that blockbuster IPO, potentially a $1.5 trillion valuation between now and Thanksgiving. Now it looks like investors are worried that it's just not the right moment to go public as AI companies sell off, that they won't get the valuation that they're hoping for, and that they're putting pressure on the company to postpone that IPO maybe into next year. Now, if that happened, that would in itself be a real hit to sentiment, wouldn't it? Speaker 2: Well, I think yesterday is another lesson of where we see hype and hope, making stocks go higher instead of the fundamentals. And that's very reflective of maybe the Anthropic IPO story. As well, we heard from Wall Street analysts, pros and trading desks, telling us that stocks would rally straight after the midterms. And of course, one session on Wall Street doesn't make it a trend, but in that bullish case, might eventually show up. But I mean, it does give you a bit of pause, more uncertainty. So, I wouldn't hang your hat on any date for an Anthropic IPO. Speaker 1: Looking forward at the wider US economy, we do, of course, get jobs data today. I mean, this comes as jobless claims have been coming in very low in recent weeks. The US economy is expected to have added about 65,000 jobs in October, which would be more than enough to break-even. The break-even rate, according to economists, is about 40,000 to keep the unemployment rate relatively low. But what Fed policymakers will be really looking at here is wage growth, isn't it? And as many Americans who are concerned about affordability would say themselves, wages in the US just aren't growing. And that means they aren't putting pressure on inflation. So for the Fed, that's good news, isn't it? Speaker 2: For once, this is a jobs report that isn't really going to move the needle immediately in terms of Fed expectations. I mean, the bar has been risen so high in terms of the past few months when the Fed weren't really united about where policy is going. In terms of today, we're going to have to see a really blowout report to see if there's any moving of expectations in terms of next year. If we see payrolls coming in above 100,000, unemployment rate at 4.1%, that's really going to move stuff. But I think the focus on today is on Wall Street and on AI. Speaker 1: And for inflation, of course, the key metric remains the oil price. And that's back over $100 today, we should say. After selling off for a while on prospects that Democrats might be able to end the war in Iran, oil traders seem to have now realized that's actually one area where it might be very difficult for Congress to rein in President Trump. Well, for today's recommended read, check out Andy Home's column on how a US-Canada trade deal would hurt European aluminium buyers. That link is in the show notes. Speaker 2: And for more on any of today's stories, hit to Reuters.com or the Reuters app. Follow us on your favorite podcast player And if you're on a smart speaker, just ask for the latest market news from Reuters. Speaker 1: And we'll be back on Monday. [This transcript was produced with AI technology that converts speech to text. The text is not reviewed or edited by Reuters journalists and some errors may occur.]

Morning Bid: AI's $3.2 trillion selloff

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