The Weak Link in the AI Revolution: Big Pharma Comes to the Rescue of Investors; Burry Believes in Mortgages

This week, the stock market experienced yet another bout of jitters, and the main source of concern (surprise, surprise) turned out to be AI once again. Now investors are fretting over a very down-to-earth question: Who, exactly, will foot the bill for all the investments in the AI revolution, and when will the promises of an incredible future start to pay off? Let me explain in more detail what I’m talking about.

Shares of data center operators and other beneficiaries of the AI boom plummeted on Wednesday, October 14: CoreWeave lost more than 15%, Nebius about 10%, Oracle 9%, and Dell 11%. The combined market capitalization of the four companies shrank by approximately $80 billion. The sell-off continued the next day, and the bond market began to send warning signals: yields on some CoreWeave bonds exceeded 16%, and credit derivatives began to price in a probability of default for the company over the next five years of more than 60%.

As a result, investors decided to find out how much the AI future costs and who is paying for it. How do analysts explain this? One of them, a technology sector analyst at Mizuho Securities, quips: “Perhaps now is the perfect time to go long on anything related to Prozac and psychotherapists.”

It seems that even on Wall Street, people are beginning to think that there is a limit to any optimism about AI.

Interestingly, against this backdrop, the Taiwanese AI chip manufacturer TSMC reported record profits for the sixth consecutive quarter. Profits rose by nearly 69%, to $23.6 billion, significantly exceeding analysts’ forecasts. Is the AI boom actually capable of generating real money—or is it just an illusion?

There was another reason for investors to worry this past week—as if they didn’t have enough to worry about already. U.S. inflation in September accelerated to 3.7% year-over-year—a five-month high. It also exceeded economists’ expectations. And while the probability of a Fed rate hike in October was estimated at about 20% before the data was released, estimates of the chances of the Fed tightening monetary policy jumped to 50% immediately after the statistics came out. At the same time, the yield on 10-year U.S. Treasury bonds reached 5.323%. What might this mean? The Federal Open Market Committee meetings are scheduled for October 27–28, and we will, of course, be keeping a close eye on them. Stay tuned with us!

Against this backdrop, the question of where to invest your money—if you want not only to preserve your capital but also to generate a regular income—is particularly relevant. Vadim Merkulov, Director of the Analytics Department at Freedom Finance Global, has prepared a portfolio of six corporate bonds exclusively for Oninvest—featuring different maturity dates and a mix of fixed and floating coupons.

The portfolio includes securities from General Motors Financial, LATAM Airlines, Ford, Australia’s Fortescue Treasury, Citigroup, and the Asian Development Bank. The logic behind the strategy is not to predict exactly what central banks will do, but to diversify risk. A floating coupon can help mitigate the impact of further rate hikes, while certain securities may rise in value if yields subsequently begin to fall.

All in all, diversification and credit quality assessment are becoming particularly important right now.

While the U.S. market is trying to figure out how sensible it is to invest billions in the future of AI, Kazakhstan is trying to build that future. The country has become a net exporter of technology services, and its fintech sector has learned to implement digital solutions at a pace that can be described as very fast, even by the standards of developed economies.

Experts from Movchan's Group have analyzed how the Kazakhstani economy works, what opportunities the country's financial infrastructure offers, and what investors considering this market need to take into account.

Between bouts of market jitters—or even during them—investors turned their attention to major pharmaceutical companies this week. For example, AbbVie shares reached an all-time high, Eli Lilly shares approached record levels, and Gilead Sciences and Amgen also saw significant gains.

Why should investors seek refuge in these companies? In short: in a turbulent market, investors need more predictable revenue and a stable business, and large drug manufacturers can often offer both. Given the questions surrounding the return on multibillion-dollar investments in AI, the appeal of the pharmaceutical sector to a segment of the market is entirely understandable.

This weekend, you can spend a little time with Michael Burry—the investor who served as one of the inspirations for the protagonist of the movie *The Big Short*. Burry believes the bull market could peak within the next nine months, and he is already preparing for a reversal. My colleague Anna Krasnova wrote about what he has bought and sold.

You could also delve a little into academic studies and take a trip “back to the future.” I’m talking about economics and the Nobel Prize in this field. This year, it was awarded to American economists Robert Hall and Michael Woodford, whose work helps us understand how policymakers can mitigate economic crises. The interesting thing is that these scholars made their key discoveries back in the 1970s and 1990s, and central banks around the world have been reaping the benefits of their work for at least a couple of decades now.

Read our article to learn how individuals and companies are helping authorities tackle crises, and why central bank communications have become a tool of monetary policy.

This article was AI-translated and verified by a human editor