Technology stocks have been soaring for some time as Artificial Intelligence (“AI”) demand has thrust the sector forward but it seems as if a voice rang out during the month to “rotate!”
“Rotating out of technology”
Sitting back in a cramped economy seat as your plane accelerates down the runway, you never hear the pilot upfront in the right-hand seat telling the pilot flying to rotate as the plane reaches take-off speed. On confirmation of rotation speed being reached, the pilot flying gently pulls back on the controls to pitch the plane’s nose up and get the aircraft into the air. Technology stocks have been soaring for some time as Artificial Intelligence (“AI”) demand has thrust the sector forward but it seems as if a voice rang out during the month to “rotate!”. The broad concerns around whether demand for frontier artificial intelligence models such as those from OpenAI, Anthropic and Google can keep growing (or at least be maintained) are not new. More recently, however, the market has been questioning whether the underlying AI demand can continue at a pace to justify stock valuations and the ballooning cost of infrastructure investment. The big pivot in the middle of October was when markets began questioning more intensely where the funding for all of the massive capital expenditure was going to come from. CoreWeave, which had raised over $50bn to fund its AI expansion, saw its bonds, issued in June at a yield of around 9.7%, soar to a yield of around 15% mid-month and almost 16% by the end of October. CoreWeave became the poster child for the debt-funded AI infrastructure build-out and the market quickly grew anxious that higher funding costs for neoclouds (like CoreWeave) could constrain AI capex and ultimately weaken the demand for semiconductors and memory chips. There were few places to hide and the SOXX semiconductor ETF lost 17% in the month and the new DRAM memory ETF fell 21%.
October’s US equity returns showed a marked rotation beneath the headline indices: the equal-weighted S&P 500 gained 4.95%, while the capitalisation-weighted index fell 0.93%. The technology rout hit the NASDAQ Composite Index hardest, taking it down 5.3% for the month. The less tech-heavy Dow Jones Industrial Index (+1.7%) and Russell 2000 (+0.5%) both finished in the green. Index concentration helps explain the S&P 500’s decline in October. Information Technology makes up around 38% of the index, and including Alphabet and Meta in Communication Services and Amazon and Tesla in Consumer Discretionary takes its roughly defined technology exposure to about 50%. Information Technology (-6.8%) and Communication Services (-15.2%) both declined sharply, dragging down the overall index (see the chart of the S&P 500 and FTSE/JSE All Share Index below). Every other sector recorded a positive return and outperformed the index: Energy (+14.0%), Consumer Staples (+11.4%), Utilities (+10.1%), Health Care (+9.8%), Materials (+6.5%), Financials (+5.8%), Real Estate (+5.0%), Consumer Discretionary (+3.9%) and Industrials (+0.3%). At the individual-stock level, Tesla (+12.7%) and Apple (+3.5%) were rare technology-related gainers, while Alphabet (-18.7%), Meta (-15.2%) and Intel (-45.3%) were among the big-name losers. Intel reported third-quarter results at the very end of the month: revenue was in line and earnings beat expectations, yet the stock fell 29% on the eve of Halloween. The appendix below lists the top stock gainers and losers in the S&P 500 and the FTSE/JSE All Share Index.
The JSE’s benchmark index lost 0.8% in October, as an 8.6% decline in Resources outweighed gains in Industrials (+1.3%) and Financials (+2.9%). It was the JSE’s second consecutive monthly loss, following September’s 6.7% decline, and the fifth negative month in the first 10 months of 2026. The October decline left the JSE price index down 7.1% year to date and down 3.6% on a total return basis, including dividends. Falling precious-metal prices put Resources under pressure: gold declined 6.3% and platinum 15.5% during the month. Impala Platinum (-16.6%), Valterra Platinum (-16.2%), Sibanye Stillwater (-15.7%), Harmony Gold (-15.6%), Northam Platinum (-13.2%), AngloGold Ashanti (-12.2%) and South32 (-12.2%) led the way lower, all with double-digit losses. Energy-linked shares provided a contrasting picture. Brent Crude rose 13.6% to $117.64/barrel and coal gained 3.2%, helping Sasol (+26.3%) and Thungela Resources (+16.2%) record strong gains. October’s Halloween trick was concentrated in Resources; Industrials and Financials provided more modest treats.
FTSE/JSE All Share index (black, LHS) and S&P 500 (vermillion, RHS): One year (daily)
Source: FACTSET
US Treasuries rallied in October while equity markets were on the back foot. The 10-year yield declined 36 basis points, from 5.27% to 4.91%, although it remained 74 basis points above its starting level for the year of 4.17%. Yields had entered October at very elevated levels after September’s sharp sell-off, attracting investors and supporting numerous 10- and 30-year bond auctions. That demand suggested investors were, at least temporarily, comfortable absorbing Treasury issuance to fund the US fiscal deficit. Fairly soft labour market data also eased fears that the Federal Reserve would need to keep tightening policy aggressively. The Fed paused on rates in October despite higher inflation readings, with another meeting before year-end offering an opportunity to reassess its stance. At the time of this review, a hike at that meeting was widely expected.
South African bond yields rallied in October as global bond yields eased, although the domestic yield decline was smaller. Soft domestic economic data pointed to less demand pressure on prices and with inflation expected to fall over time and the market offering high real yields, the path of least resistance was down. The Medium-Term Budget Policy Statement by the finance minister was also mildly positive for bonds: sovereign debt was considered to have peaked, tax revenues were well ahead of budget and the fiscal consolidation presented in the budget was supportive of a positive response from credit ratings agencies later this year. The yield on the benchmark R2035 bond, which is more like an eight-year bond than a 10-year bond these days, eased 19 basis points in October from 8.76% to 8.57% but remained 36 basis points above its 2026 starting level of 8.21%. At the last meeting of the South African Reserve Bank’s Monetary Policy Committee, policymakers left rates unchanged on the back of limited evidence of second-round inflation effects. Should such evidence not materialise, then there would be no reason to hike rates again at the final meeting this year on 19 November. Higher fuel prices and higher interest rates are already dampening demand and eating into disposable incomes and another rate hike would be a cruel and unnecessary punishment for the economy.
Are we witnessing an Artificial Intelligence bubble bursting?
As we roll into November, technology stocks have continued to weaken, with earnings beats and upgraded guidance generally failing to lift share prices. This raises two distinct questions: is the underlying AI growth thesis breaking down, or are investors reassessing financing, returns on capital expenditure and valuations? Results from ASML, TSMC and Nvidia do not point to a breakdown in the growth thesis. These companies and the large hyperscalers are generating substantial revenues and cash flows, while Microsoft, Amazon, Alphabet and Meta continue to commit vast sums to capital expenditure. That supports the demand story but does not by itself resolve concerns about how investment is funded, what it will earn or what investors should pay for those businesses. The scale of the preceding rally also provides context: from the start of 2023 to its all-time high on 7 October 2026, the NASDAQ gained around 163%, with bouts of volatility along the way. It lost 24% over February–April 2025, recovered that loss by June and finished the year with a 20% price gain. It then lost 13% over January–March 2026, recovered by mid-April and reached a record high in October. Those recoveries show that corrections can occur within a bull market but they do not establish that the present bull market remains intact.
The correction may offer opportunities for discerning buyers, but only where the price, funding costs and prospective returns justify the investment. The market has become more discriminating about negative cash flows and capital expenditure financing: CoreWeave’s credit-market repricing and the de-rating of technology favourites show that access to capital is not unlimited. Investors therefore need to evaluate funding costs against the returns on the investments being financed. Companies that are indispensable to semiconductor infrastructure should continue to attract interest, at the right price. The key warning signs would be falling AI demand, declining semiconductor orders and hyperscalers abandoning their capital expenditure plans. We have not yet seen evidence of those developments, which supports, but does not prove, the case that this is a correction rather than a breakdown in the AI thesis. Earnings, cash flows, funding conditions and capital expenditure commitments are therefore the signals to keep watching. As always, sleep with one eye open on the earnings.
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Craig Pheiffer