NASDAQ Falls 4.5% Despite Lower US Long-Term Interest Rates | The 'Quality of Capital Supporting Growth' Begins to Be Questioned in the AI Market: Review of Last Week and …

Introduction | Why Stock Prices Fall Even When Interest Rates Drop

In the US market last week, we saw a change in one of the relationships that has supported the market until now.

Despite the 10-year US Treasury yield falling by approximately 0.15 percentage points over the week, the NASDAQ Composite Index fell by 4.5%.

Normally, falling interest rates are a tailwind for growth stocks, which rely heavily on expectations of future earnings. However, this time, that effect was not observed.

The background to this is not just doubts about AI demand itself. It is about how companies building AI infrastructure are financing their massive capital expenditures, and when they can turn those investments into profits and cash flow.

The market may be starting to ask these questions more strictly than ever before.

On the other hand, looking at fund flows, it is not the case that capital is fleeing the stock market as a whole.

In this week’s weekly article, we will connect stock prices, interest rates, credit markets, and fund flows to organize what last week’s decline means and the points we want to confirm in this week’s earnings reports.

1. Last Week’s US Market | Selling Concentrated in AI-Related Stocks

First, let’s look at the weekly performance of major stock indices.

The NASDAQ saw its largest weekly decline since June. Meanwhile, the Dow Jones Industrial Average, which has a relatively lower composition of tech stocks, maintained positive territory.

This difference is significant.

This decline suggests that the valuation of AI and technology-related companies, which have led the market until now, has changed significantly, rather than being the result of earnings outlooks for all US companies deteriorating in the same way.

Symbolic of this was the approximately 25% weekly drop in AI cloud company CoreWeave.

Selling also spread to semiconductor-related stocks, with the PHLX Semiconductor Index recording its longest consecutive decline since 2008. Dell Technologies also fell by approximately 22% for the week.

Furthermore, the selling spread to large-cap technology stocks such as Amazon and Alphabet.

What can be read from reports by Reuters and the WSJ is not just profit-taking, but a sense of caution regarding the profitability of AI capital investment and the burden of financing.

Until now, AI-related stocks have been valued for their robust demand and expansion of capital investment.

However, the expansion of capital investment and the generation of sufficient profits from those investments are not the same thing.

The market now seems to be becoming aware of the time lag and risks between those two.

2. Why did the decline in interest rates not support stock prices?

Last week, the yield on the 10-year US Treasury note fell by approximately 14.6 basis points (0.146 percentage points) from the previous weekend to 5.097%.

Meanwhile, the US Consumer Price Index (CPI) for September rose 3.7% from the same month last year. Import prices for September, released on the 16th, also rose 1.1% month-on-month, exceeding the market forecast of 0.8%.

With crude oil prices remaining high, inflation concerns have not been resolved.

Even so, government bonds were bought, and yields fell.

What we want to consider here is that a decline in interest rates has two different meanings.

One is the expectation that price increases will settle down and monetary policy will move toward easing.

The other is a move by investors to shift funds from high-risk assets to government bonds, wary of the outlook for the economy and corporate earnings.

This time, the latter factor may have strengthened.

Huge investments in AI infrastructure are supporting demand in a wide range of industries, not just semiconductors, but also construction, electric power, power transmission and distribution equipment, and cooling systems.

If investment plans are postponed due to rising funding costs, the impact could spread beyond AI-related companies.

In other words, it can be interpreted that the market has begun to think about why interest rates are falling, rather than simply welcoming the fact that they have fallen.

Furthermore, the interest rate futures market continues to price in additional rate hikes by the end of the year. Ahead of the FOMC on October 27–28, there is a coexistence of caution regarding inflation and slowing growth.

3. The difficulty of AI infrastructure investment shown by CoreWeave

To understand this adjustment, the case of CoreWeave cannot be avoided.

The company develops large-scale computing facilities equipped with NVIDIA GPUs and other hardware, and operates a business of leasing them to AI development companies and others.

According to Reuters, capital expenditure for 2026 is expected to be between $35 billion and $39 billion, while 2025 revenue was $5.1 billion and net loss was $1.2 billion.

In addition, the yield on its 2030 maturity bonds is approaching approximately 16%. The cost of CDS, a financial transaction like insurance to prepare for default, has also surged.

Herein lies the difficulty unique to the AI infrastructure business.

To build facilities, a massive amount of capital is required upfront. However, it takes time for the facilities to be completed, provided to customers, and generate sufficient revenue.

During that time, interest payments on loans and construction costs continue to accrue.

Admittedly, it is also a fact that there is a substantial backlog of orders.

Mechanisms to support the business also exist, such as purchase agreements for unsold computing capacity by NVIDIA.

Therefore, it is not appropriate to conclude that AI demand itself has vanished based on the sharp drop in CoreWeave’s valuation.

What I consider important is the following distinction.

The existence of AI demand and the ability of companies meeting that demand to maintain a sound financial structure are separate issues.

If financing conditions tighten in the future, even companies with sufficient contracts may face the need to raise additional capital or deal with equity dilution.

On the other hand, companies that generate abundant cash flow from existing businesses may be able to maintain a relatively advantageous position.

I feel there is an increasing need to evaluate AI-related stocks not as a single group, but to include their financing structures in the assessment.

4. Changes Indicated by Capital Flows | Is It a Move Away from Stocks or a Reassessment of Investment Targets?

Looking only at the stock price decline, it feels as though investors are withdrawing from risk assets all at once.

However, LSEG Lipper’s fund flow data shows a slightly more complex situation.

The movement of US funds for the week ending October 14 is as follows.

What I want to highlight is that while funds are flowing into US equity funds as a whole, there is a significant outflow occurring in the technology sector.

Furthermore, globally, while approximately $20 billion has flowed into equity funds, about $4.75 billion has flowed out of the technology sector.

This suggests that rather than investors abandoning stock investments altogether, they may be reassessing their concentration in specific growth themes.

Additionally, capital inflows into US bond funds have continued for 26 consecutive weeks.

In the bond market, demand for safety and relatively stable yields continues.

However, it cannot be concluded that the outflow of funds from money market funds (MMFs) directly led to inflows into the stock market. Furthermore, these figures represent fund inflows and outflows and do not fully reflect the movement of capital across the entire market.

Nevertheless, this data reveals one significant change.

Perhaps investors have not stopped taking risks, but are instead beginning to reconsider which risks they are willing to commit their capital to.

5. Outlook for This Week | Corporate Earnings as a Litmus Test for the Sustainability of AI Investment

This week, corporate earnings and management commentary may have a greater impact on market direction than economic indicators.

Of particular importance is whether the expansion of capital expenditure will continue, and whether the profits and cash flow to support that investment are being secured.

In particular, I am paying close attention to Meta’s earnings on the 21st (5:00 AM JST on the 22nd).

While Meta is investing heavily in AI infrastructure, it is also generating significant cash flow from its advertising business.

In other words, it has a different financial structure than companies like CoreWeave, which have a high dependence on external financing.

What I want to confirm this time is not just the amount of capital expenditure itself, but the growth of the advertising business, the contribution of AI investment to earnings, and changes in free cash flow.

Additionally, Lam Research’s earnings will serve as material to confirm investment demand for semiconductor manufacturing equipment.

Even if AI-related demand is strong, to what extent will delays in data center construction and a worsening financing environment affect the outlook for semiconductor demand?

I want to pay close attention to management’s explanation.

As for economic indicators this week, initial jobless claims on the 22nd, preliminary US manufacturing and services PMI on the 23rd, and the University of Michigan Consumer Sentiment Index are scheduled.

With inflation concerns remaining, it is also important to see whether signs of a slowdown in economic activity and employment will emerge.

6. Three Perspectives for Viewing the Market This Week

In this week’s market, I would like to confirm not just whether stock prices will rebound, but also the following points.

First is the relationship between interest rates and stock prices.

If the US 10-year Treasury yield falls further, will it act as a support for stock prices? Or will concerns about the economy and corporate earnings prevail, leading to continued stock price declines?

Second is the credit market for AI-related companies.

Whether concerns over corporate bond yields and credit risk for companies like CoreWeave will subside is important when considering the funding environment surrounding AI infrastructure investment.

Third is whether investor perspectives will change based on corporate earnings.

If the sustainability of capital expenditure and its contribution to earnings can be confirmed, excessive caution may ease.

Conversely, if there are successive delays in capital expenditure plans or a deterioration in cash flow, a reassessment of valuations may continue.

In any case, this week I would like to confirm the underlying funding conditions and corporate earnings rather than judging the market solely by stock price movements.

7. How to apply this week’s news to your own investments

Following this decline, I do not think it is necessary to consider holding AI-related stocks a mistake in itself.

However, it is not guaranteed that a market where any financial structure is valued will continue, even for companies with high growth potential.

Therefore, why not consider the following regarding the companies you hold?

• Is the capital supporting future growth generated from the cash flow of existing businesses?

• If massive capital expenditure is required, is there enough financial buffer to withstand rising interest rates or construction delays?

• To what extent are growth expectations already priced into the current stock price?

Also, rather than changing your investment decision solely because of a stock price decline, it is important to confirm your initial investment objectives, investment horizon, available funds, and the overall balance of your portfolio.

Even in industries where long-term demand exists, not all companies will grow in the same way.

That is precisely why I want to continue checking not only the competitiveness of companies but also their financial health and cash flow.

Conclusion | Thinking about a change in valuation criteria, not the end of the AI market

I feel that last week’s US market was a week that confronted the growth expectations of AI-related companies with the realistic issues of funding and monetization.

However, there is not yet sufficient evidence to conclude that demand for AI has been lost.

Rather, this movement may indicate that as the expansion of AI infrastructure continues, the financial structure and investment recovery capability of each company are becoming more important evaluation factors than ever before.

And I believe this change will be an important lesson for long-term investors as well.

Finding a growing industry and finding a company that can profit from that growth are not necessarily the same thing.

Through this week’s corporate earnings, I would like to examine both the demand and capital supporting AI investments.

Rather than being swayed by short-term stock price fluctuations, I would like to build my own investment decisions by accumulating facts one by one.

Sources and References

• The Wall Street Journal (October 16, 2026) ‘New Cracks in AI Trade Push Wall Street to Worst Week Since June’

• Reuters (October 16, 2026) ‘Why CoreWeave is in the crosshairs of the AI scare’

• Reuters (October 16, 2026) Reports on U.S. and global fund capital flows

• LSEG Lipper, FactSet: Market data, capital flow data

• Earnings Whispers: Corporate earnings schedule for the week of October 19, 2026

Notes: This article is intended for market analysis and information sharing based on publicly available information and does not recommend the buying or selling of any specific financial products. Various figures and outlooks are based on the time of publication and are subject to change. Please make investment decisions based on your own objectives, risk tolerance, and investment horizon.