US AI Stocks Pull Back as Market Awaits Fed Guidance

Overnight, US stocks tied to the AI narrative—whether through fundraising or price hikes—continued to face pullbacks.

From Nvidia, which recently raised server prices by over 15% for AI chips, to Alibaba, which just announced a new share issuance to fund AI infrastructure, companies leveraging the AI story for price increases or capital raises are all seeing sustained corrections.

At the close, Nvidia fell 3%, marking its seventh consecutive daily decline, the longest since 2022. Memory chip and optical communication stocks, which previously soared on any AI-related news, also pulled back again: SanDisk dropped 6.45%, Micron fell 5.83%, and SK Hynix lost 5%.

To understand the market's current attitude toward the AI narrative, Alibaba's recent experience is the best case study.

1. Alibaba Raises HK$80 Billion for AI, Stock Plunges 10% in Hong Kong

Alibaba announced plans to issue new shares in Hong Kong, raising HK$80 billion (about $10.2 billion) for AI infrastructure—its first share placement since its 2019 Hong Kong listing, with all bets on AI.

Six months ago, this would have been a catalyst for a stock surge. Instead, the Hong Kong-listed shares plunged 10%. Management stepped in urgently: Chairman Joe Tsai and CEO Eddie Wu each bought shares, totaling about HK$120 million, to stabilize the situation and prevent further declines in the US-listed shares.

The fact that executives had to personally buy shares to steady the market speaks volumes.

2. The Market's Taste Has Completely Changed

What did AI trading look like in the first half of the year? No one cared about profits or cash flow—only grand visions and whose imagination was bigger. As long as the story was sexy enough, capital was willing to pay any valuation.

Now, that playbook no longer works. The market is scrutinizing the books: show revenue, show cash flow, and return money to shareholders through dividends and buybacks. When Alibaba's HK$80 billion share placement was announced, investors' first reaction wasn't "AI infrastructure is promising" but "they're diluting my shares again."

Nvidia faces the flip side of the same coin. Raising server prices by over 15% used to be read as the strongest bullish signal in the supply chain—if upstream suppliers dare to raise prices, demand must be strong, and memory makers benefit. Now, the same news ignites two fears: downstream customers worry about runaway AI hardware costs and pressured returns on investment, while upstream shareholders grumble that the company is focused only on expansion and ignoring dividends.

The same action was bullish six months ago and bearish today. What changed is the market's rulebook for the AI narrative.

3. US Treasury Tries Another Rescue, Market Remains Unconvinced

Beyond the weakening AI narrative, macro pressure from US Treasuries continues to drag on the broader market.

Last night, the US Treasury attempted another rescue: officials said they would use the Treasury General Account (TGA)—the government's checking account at the Federal Reserve, holding nearly $1 trillion—to directly buy long-term bonds and push yields lower.

It sounds impressive, but the market knows better: that money cannot all be used for bond purchases. Daily government spending and debt servicing must come from the same account, so the amount actually available is far less dramatic. The reaction was lukewarm: Treasury yields dipped briefly then quickly rebounded, with the 30-year yield still stuck near 5.246%.

4. All Eyes on Warsh on Friday

With fiscal measures failing repeatedly, the market's attention has shifted entirely to the Federal Reserve.

This Friday, Fed Chair Warsh will speak at the Jackson Hole Economic Policy Symposium. This is set to be the most closely watched central bank speech of the year: since taking office in May, Warsh has offered almost no forward guidance, so every word and nuance will be dissected.

The market wants only one answer: with inflation persistently above the 2% target and fiscal conditions deteriorating, what does the Fed plan to do?

After all, Treasury Secretary Bessent can only play technical moves like adjusting the debt maturity structure; only the Fed has the power to anchor inflation expectations. Until Friday, the market will likely trade sideways anxiously.

5. Final Thoughts

Looking at recent market action, two simultaneous "trust reassessments" are underway.

One is on the AI narrative: shifting from listening to stories and pricing dreams to checking books and demanding cash flow. Alibaba's share placement being sold off and Nvidia's price hike triggering panic are essentially the same test—show us the return on AI investment. This reassessment won't end in a day or two; sharp volatility in high-flying sectors is likely to remain the norm.

The other is on US fiscal policy: the Treasury has acted twice, and the market has shrugged twice. Technical buybacks and TGA rhetoric cannot suppress yields driven by inflation, deficits, and heavy issuance. The toolbox is running low, and market patience is wearing thin.

The intersection of these two reassessments is this Friday's Jackson Hole. One sentence from Warsh could simultaneously set the valuation anchor for AI stocks and the rate anchor for Treasuries.

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