Tech stocks tank on AI and rate hike fears

Good morning. Here’s what happened overnight and what you need to know today.

1.

Chip rout: Chip stocks and memory makers led a selloff on Wall Street overnight as fears of rising US interest rates and the scale of Big Tech’s AI spending plans shook the sectors that have powered markets to record highs this year. The Nasdaq Composite closed 2.2% lower and the S&P 500 dropped 1.4%, while the Dow ended slightly lower. Chipmakers were among the hardest hit, with Micron and Qualcomm down 13.2% and 8% respectively, while Nvidia fell 4.1%. The rout began in Asia, where South Korea’s Kospi plunged 10% from a record as SK Hynix and Samsung Electronics recorded double-digit drops, before spreading to US markets. “It’s a double whammy of building AI scepticism and strong economic growth in the US,” Arun Sai, senior multi-asset strategist at Pictet Asset Management, told the FT. The latter is stoking fears the Fed will raise rates, which would dent the appeal of richly valued tech stocks. The US Fed, under new chair Kevin Warsh, jolted investors last week by signalling it was resolute in stemming inflation. (FT)(Reuters)(Bloomberg)(WSJ)

2.

Star debtor: SpaceX drew about USD89 billion of demand for its debut US bond sale, as it looks to raise up to USD25 billion in five parts, Bloomberg reported citing unnamed sources. According to the report, the strongest demand in the five-tranche offering was for the shortest-dated and least risky tranche. The skew and the relatively wide premium SpaceX is paying over Treasuries likely reflect concerns about its cashflow. According to S&P Global Ratings, which grades SpaceX at BBB (one notch below Moody’s Baa1) Elon Musk’s rocket, satellite and AI conglomerate will likely keep burning cash through 2030, with the burn rate rising sharply next year.  “The equity market owns the upside, bondholders don’t,” Grant Nachman, CIO of Shorecliff Asset Management, told Bloomberg.  “So you have to get paid for the risk.”  According to the report, the 10-year notes are being offered at 1.4 percentage points more than Treasuries and the longest-dated 2056 bonds at about 1.75 percentage points above. The report did not disclose the pricing for the shortest-dated five-year tranche that drew the strongest demand. SpaceX shares had fallen below their debut price (USD150) before rebounding to close 0.98% higher at USD156.11 each. (Bloomberg)(Capital Brief)

3.

Inside word: Commonwealth Bank’s digital brand Bankwest is waiving mortgage insurance for high value customers in certain industries as part of a bold growth strategy to take on Macquarie, Capital Brief revealed. The bank has now waived LMI when lending to employees of big tech companies, banks and federal government agencies, as well as accountants and lawyers, with a deposit of just 10% of a property’s value. In an email to brokers last week, the bank said the policy would create “more opportunities to support professional customers while helping them reduce upfront borrowing costs”. Traditionally such policies have been restricted to medical professionals such as doctors, who enjoy job security and predictable wage growth. The expansion comes amid a sharp exodus of investors from the property market, with Westpac lamenting a 20% decline in investor applications. “I’m surprised they took this decision, especially in a downturn,” mortgage broker Aidan Harley told Capital Brief. Bankwest is seen as CBA’s direct competitor to Macquarie, which has taken significant market share from ANZ, NAB and Westpac. (Capital Brief)

4.

Stolen tokens: AI token theft has eclipsed traditional credential harvesting to become one of the most urgent — and least discussed — cybersecurity threats facing businesses embedding AI into their products, according to Stripe’s global head of data and AI Emily Sands. “Fraudsters have figured out that in AI you don’t actually need to steal money or credentials,” Sands told Capital Brief. “You can just steal tokens — and tokens have real value.” Unlike stolen SaaS credentials, which unlock a product, tokens unlock infrastructure. They can be resold, exploited, or used to run an entirely separate business on someone else’s bill. Sands says one in six sign-ups at AI companies on Stripe’s network are fraudsters, free trial abuse has more than doubled in six months, and Stripe blocked more than 3.3 million high-risk registrations across just eight AI companies last month alone. Sands said the threat could kill the freemium model (letting users try a product free before they pay) forcing a rethink of how AI products are sold. The next wave, she warns, is agentic commerce, in which AI agents rather than humans become the buyers. (Capital Brief)

5.

Whistle stop: KPMG Australia’s chair Martin Sheppard resigned yesterday along with two senior audit partners, the latest fallout from the scandal over whistleblower allegations that staff misused confidential client information to win audit work. The departures of Sheppard and audit partners Paul Rogers and Eileen Hoggett follow the exit of CEO Andrew Yates and audit chief Julian McPherson weeks earlier. As Capital Brief foreshadowed on Friday, Sheppard proved to be the fall guy after being singled out for criticism at a parliamentary committee hearing, where he initially invoked legal professional privilege to withhold internal documents before reversing the decision. Rogers and Hoggett, named by the whistleblower as lead partners on the Lendlease auditing team, are under investigation by the corporate regulator. “The decisions announced today are necessary and immediate,” interim chief executive Stan Stavros said in a statement. “We did not meet the standards expected of us, and we recognise the impact this has had on the whistleblower, our people, our clients and the community.” KPMG will appoint an independent chair and add independent directors as part of an action plan to overhaul governance, with a “lessons learned” review into its whistleblowing processes to be conducted by Principia Advisory. (Capital Brief)(Reuters)

6.

The launches: Anthropic and Meta rolled out products in a flurry of consumer and enterprise tech moves. Anthropic launched an AI agent inside Salesforce’s Slack app that can work alongside employees in group chats, deepening its push into the key enterprise market. Called Claude Tag, the tool lets users summon the agent into a Slack thread by typing “@Claude”, where it can read conversations, break down tasks and proactively flag relevant updates across an organisation without being asked. The move builds on strong early demand from businesses, which has helped push Anthropic’s valuation to USD965 billion, surpassing that of OpenAI. Meta meanwhile launched a cheaper range of AI smart glasses starting at USD299, well below last year’s USD800 Ray-Ban Display glasses. Separately, the New York Times reported Meta boss Mark Zuckerberg directed a small team to create a prediction markets app similar to Polymarket and Kalshi. Internally called “Arena”, the standalone app would run independently from Facebook and Instagram and likely use a video game-like points system rather than real-money betting. Though according to the report, the company has not ruled that out. (Anthropic)(Meta)(NYT)(Reuters)

7.

Suit up: China’s Alibaba sued the US government over its inclusion on a Pentagon list of companies linked to China’s military, asking a California court to order its removal. According to reports citing court filings, the Chinese e-commerce and technology giant told the San Jose federal court that the Pentagon had not provided “substantial evidence” to justify adding it to the so-called 1260H list, and called the decision “arbitrary and capricious”. “Alibaba is not a Chinese military company nor part of any military-civil fusion strategy,” the company said. Military-civil fusion refers to a Chinese requirement for companies to share technology with the People’s Liberation Army. The Pentagon expanded the blacklist earlier this month to 188 entities, adding high-profile names including search company Baidu, automakers BYD and NIO, and biotech group WuXi AppTec. Alibaba was accused of being a “military-civil fusion contributor to the Chinese defense industrial base” through an affiliation with China’s Ministry of Industry and Information Technology. Alibaba’s suit follows a similar petition by WuXi AppTec. Earlier this week, China restricted commerce with several US companies in retaliation for the additions. (FT)(Reuters)(Bloomberg)

8.

Borrowed time: The self-managed super fund sector is scrambling to work out the fallout from a surprise government ban on borrowing to buy residential property, after being shut out of a deal struck with the Greens. Treasurer Jim Chalmers and Prime Minister Anthony Albanese yesterday secured the Greens’ support for changes to capital gains tax and negative gearing in exchange for the ban, which will take effect 45 days after the bill receives assent and will not affect existing arrangements, Chalmers said. “There was no consultation on this and that’s a disappointing aspect,” SMSF Association chief executive Peter Burgess said, arguing the near two-decade-old rules were “a settled policy position” that should not be traded off to pass budget tax measures. Burgess said his organisation is still trying to work out whether the changes could affect future refinancing for existing properties within SMSFs. He also disputed that there was any problem to fix. Chalmers said SMSFs accounted for less than 1% of total residential borrowing and pointed to a 2014 recommendation by former Commonwealth Bank chief executive David Murray, who told the AFR he backed banning super fund borrowing despite calling the broader CGT changes a “disaster”. (Capital Brief)(AFR)