AI Trade Takes A Hit: Nasdaq Tumbles Amid Rate Hike Fears

Here's the thing: Nasdaq just had its worst session in a year, yet by Monday, it felt like a bad dream. But why did the market freak out in the first place, and what does it mean for crypto?

AI Boom or Bust?

On Friday, chipmakers like Micron and Broadcom experienced their worst day since 2020. Then, on Monday, they bounced back, up 6.5% by midday. Wall Street seemed to see Friday as a mere pause, not a panic over AI stocks. Meanwhile, in Asia, South Korea's KOSPI index tanked 8.8% at the open before closing down 8.29%. Samsung and SK Hynix took a hit, falling 10% and 8%. The won hit a 17-year low against the dollar.

Nvidia's CEO, Jensen Huang, called Friday's selloff a buying opportunity. He says demand for AI chips still outstrips supply, even as he projects a $1 trillion revenue from new AI chips through 2027. The markets seemed to agree, at least for now.

The Rate Hike Dilemma

There's a snag, though. A hotter-than-expected May jobs report added 172,000 workers, pushing traders to price in a quarter-point Fed rate hike this year. Kevin Warsh, the new Fed chair, faces a tough call. President Trump, on Meet the Press, said there's 'no reason to raise interest rates,' calling it a 'success killer.'

Higher rates would weigh heavily on AI stocks, like those on the Nasdaq, which relies on future earnings. On Friday, the Nasdaq fell 4% while the Dow dropped just 1.4%. Treasury yields also rose, with the two-year yield reaching its highest since February 2025.

So, what's in store for crypto? If the Fed hikes rates, high-risk assets like Bitcoin might feel the heat. But if inflation stays tempered, crypto could remain a hot commodity.

What Next?

Friday will be turning point, as SpaceX is set to price the largest IPO in history at a $1.75 trillion valuation. AI is a massive part of this valuation, with SpaceX lining up $75 billion in future revenue, including a $30 billion deal with Google for Nvidia chips. Morningstar values the company at less than half its target, though. So, is AI demand justifiable? We'll find out soon enough.

Look, Friday's dip was a jolt but not a derailment. The markets now seem super sensitive to negative surprises. With the May CPI data coming Wednesday and PPI on Thursday, any hot inflation numbers could stir things up. And let's not forget the war in Iran, which, if it flares up again, could also disrupt the AI rally.

The one thing to remember from this week: It's high stakes for the AI sector. Rate hikes, geopolitical tensions, and a looming IPO could make or break the current momentum. That's the week. See you Monday.