Hotter Inflation Revives Rate-Hike Risk and Deepens AI Stock Selloff

Hotter inflation revives rate-hike risk and deepens AI-stock selloff

U.S. stocks fell sharply Wednesday after September inflation came in hotter than expected, reviving concerns that the Federal Reserve could raise interest rates and intensifying pressure on technology and artificial-intelligence shares. The Nasdaq dropped 1.88% to 26,692.87, while the S&P 500 declined 1.11% to 7,718.94, according to HDFC Sky.

CPI shifts the market’s rate outlook

Headline consumer prices rose 3.7% year over year, above the 3.6% forecast, while core CPI increased 0.3% month over month and 2.6% annually, the same report said. The data raised expectations that the Fed may need to keep monetary policy restrictive or deliver another rate increase, pressuring growth stocks whose valuations are particularly sensitive to higher borrowing costs.

Market coverage said the probability of an October rate hike rose to about 37% from 22% after the inflation report. Treasury securities strengthened as investors moved toward perceived safety, while the technology-heavy Nasdaq suffered its worst session since July 23, according to HDFC Sky.

AI infrastructure bears the brunt

The selloff was concentrated in companies tied to artificial-intelligence infrastructure and data-center spending. CoreWeave fell 16%, Nebius declined 11%, Dell Technologies dropped 11%, and Oracle lost 9%, according to The Economic Times.

The Philadelphia semiconductor index fell 4.3%, with Nvidia, AMD and Broadcom also under pressure as investors reassessed the cost and financing risks surrounding the AI buildout, HDFC Sky reported. Morningstar described the move as a second day of selling in technology stocks, with Nasdaq futures falling as the global retreat from AI-linked equities accelerated.

The market reaction was not uniform. Apple rose 0.5% to a record close and its market value moved above $5 trillion, while healthcare shares held up comparatively well, according to HDFC Sky.

What to watch

Investors will focus on whether the inflation data changes expectations for the Fed’s October and December policy decisions, and whether elevated borrowing costs continue to pressure AI infrastructure, semiconductor and other long-duration technology stocks. The market will also assess whether the recent decline broadens beyond the AI trade into the wider S&P 500.