Wall Street struggled to find its footing last week as renewed concerns about financing the artificial intelligence boom overshadowed strong earnings. An early rebound in AI-related names ran into a brick wall Thursday after Meta Platforms reported negative free cash flow for the first time since its 2012 initial public offering. The sell-off spread to more defensive areas of the market Friday, sending the Dow Jones Industrial Average down more than 1% as oil prices surged on fears of renewed U.S. strikes against Iran. The Nasdaq only posted a slight loss as investors returned to beaten-down chip stocks and bought up cyber stocks. The S & P 500 on Friday was modestly lower. For the week, the Dow was the big winner, rising 0.4%. The S & P 500 was down 0.5%, while the Nasdaq slipped 0.7%. Here's a closer look at the three developments that drove last week's market action.
AI funding fears deepen
The AI trade remained volatile last week as investors weighed strong demand against growing concerns about how companies will finance the massive infrastructure buildout. AI stocks rallied early in the week, especially on SpaceX 's surging revenue numbers reported Tuesday evening. Thursday was terrible. In addition to cash flow concerns, Meta's strong earnings from Wednesday evening were overshadowed by its disclosure that its long-term plans could require hundreds of billions of dollars in additional financing. CoreWeave , which has become a focal point for concerns about debt-fueled AI spending, fell 10% Thursday as investors continued to scrutinize its borrowing costs. It was down more than 10% for the week after the neocloud ended the prior week down more than 25%. Even Nvidia CEO Jensen Huang acknowledged the funding challenge, saying Thursday that the "demand of the capital is much greater than the availability of the capital." The issue isn't AI demand, but whether companies can secure enough financing to meet it as borrowing becomes more expensive. Nvidia was down roughly 1.5% last week. We took advantage of Thursday's sell-off to buy 10 shares of GE Vernova , our first AI-related purchase in five weeks, and upgraded the stock to our buy-equivalent 1 rating on confidence in long-term power demand. But we also reduced our exposure to the broader AI trade. "The collapse of the data center requires us to circle the wagons," Jim Cramer said. "We can't have too much of the ones we have. We can pick as we did with GEV, but nothing aggressive. And all tag ends should go like Broadcom." He continued: "Circling means we want to be bigger in the better ones." To that end, we exited Broadcom on Friday, locking in an average gain of roughly 128%. We also trimmed CrowdStrike , realizing a gain of about 187%, to right-size the position rather than because of concerns about its fundamentals. CrowdStrike and Palo Alto Networks were our two biggest winners last week — both up more than 11% as news of the security flaws in the PHP programming language touched off a global security scramble. CrowdStrike CEO George Kurtz told CNBC Friday that AI-powered attacks observed by CrowdStrike doubled each month from July through September. Jim has said all along that cyber is needed more than ever in the new world of AI.
Unpacking Meta's wild week
Meta delivered a strong third quarter Wednesday evening, but worries about negative free cash flow and its AI spending needs upstaged strong guidance and a promising roadmap for its viral Muse AI agent. What made Thursday's 7% drop in Meta shares even more painful was that it had been rallying in after-hours trading on Wednesday night on encouraging signs for Muse. While a muted capital expenditure outlook was initially viewed as a positive on earnings night, a regulatory filing from Meta quickly raised fresh concerns about its funding needs. The company warned that its long-term plans could require raising "hundreds of billions of dollars over a period of several years beginning as early as fall 2026." The filing shed more light on Meta's plan to create a new class of non-voting stock, Class C, in January to help finance investments and acquisitions without diluting CEO Mark Zuckerberg's voting control. The new share class would basically facilitate a two-for-one stock split, with holders getting one Class C share for every Class A they own. While encouraged by early Muse traction and Meta's strong core digital advertising business, we want greater clarity on how those investments will be funded and monetized. We maintained our hold-equivalent 2 rating on Meta stock and $800 price target. Meta stock lost more than 9% on the week.
Bright spots in the portfolio
The rotation out of AI stocks benefited several defensive portfolio holdings last week, reinforcing the importance of diversification . Kimberly-Clark jumped 4.3% as investors sought safety in consumer staples. Home Depot increased 3.3%, benefiting from the 10-year Treasury yield going below 5%, which could help revive housing activity and home improvement spending. Johnson & Johnson surged 3.2%, recovering all its post-earnings losses as investors rotated into healthcare. There were also encouraging developments for Apple and Qnity Electronics . Apple's new foldable iPhone Duo is off to a strong start, with delivery wait times exceeding three months. While supply constraints are contributing to the delays, strong demand suggests the device could become another growth engine. The Duo became available in stores for walk-in customers on Friday. Apple shares rose about 1.2% for the week. The iPhone maker also expanded its partnership with Qnity , which will produce advanced films for the 18 Pro's new camera system. The deeper relationship is encouraging, though our investment thesis remains centered on Qnity's fast-growing data center business. Qnity shares fell more than 4.5% for the week on the recent data center trade troubles, though far less than GE Vernova's over 11% weekly drop.
