Key Points
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Rising oil prices are adding to concerns about inflation and borrowing costs.
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Meta’s negative free cash flow is raising questions about how tech companies will fund their AI ambitions.
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For Micron, a slowdown in AI infrastructure spending could threaten the growth supporting its stock.
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Micron Technology (NASDAQ:MU) stock fell 6.3% on Thursday, Oct. 22, as rising oil prices and concerns about AI spending dragged on chip stocks.
The S&P 500 and the Nasdaq Composite were down 1.2% and 2.6%, respectively.
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Oil and AI funding concerns hit chip stocks
Brent crude, an international benchmark for oil prices, topped $112 a barrel after attacks in Saudi Arabia raised concerns about further disruptions to energy supplies. The ongoing war has choked oil and gas flows from the region and sent prices soaring, from around $72 just before the conflict began to their elevated levels today.
High oil prices help fuel inflation across the economy, which in turn can keep interest rates and borrowing costs elevated. While Treasury yields actually fell Thursday, they remain well above prewar levels. For companies involved in a high-growth, capital-intensive industry like AI, that financing pressure makes investors nervous.
Rising oil prices pressure chip stocks
For Micron, the concern is what happens if the companies building AI infrastructure have more trouble paying for it. Higher borrowing costs could lead to a slowdown in orders for the chipmaker and curb the extreme growth supporting its stock price.
Image source: Getty Images.
While its Q3 report showed no signs of a capex slowdown — quite the opposite — Meta Platforms gave investors more reason to question how the AI build-out will continue to find enough funding. Meta reported negative free cash flow (FCF) — the money left after operating expenses and capital spending — for the first time since 2012, while outlining plans to raise money through a new class of stock.
The decision to lean on equity sales as opposed to debt could be a signal that lenders are getting less willing to extend credit or that the math isn’t quite penciling out the way it once did.
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Micron Technology. The Motley Fool has a disclosure policy.
