U.S. stocks closed lower for a third straight trading day on Tuesday as rising long-term yields kept pressure on risk assets, with technology shares taking the biggest hit. The Dow Jones Industrial Average fell 0.22%, the S&P 500 lost 0.69%, and the Nasdaq Composite dropped 1.33%. The rate move weighed most heavily on the Nasdaq because of its larger concentration of high-valuation technology names, especially AI and chip stocks.
Long-dated bond yields climb across major markets
The U.S. 30-year Treasury yield briefly reached 5.338% intraday, its highest level since 2007, before ending around 5.285%. The 10-year Treasury yield approached the 4.75% high seen in January 2025 and closed at 4.706%.
The sell-off was global. France’s 30-year yield rose to its highest level since 2008, Germany returned to 2011 levels, Japan climbed to its highest point since 1999, and the U.K. moved close to 6%.
Robert Tipp, chief investment strategist at PGIM Credit, said, 「Fundamentally, this is a return to normalization.」 Investors are increasingly treating the post-crisis era of ultra-low rates as one that is drawing to a close.
Several forces were cited behind the bond-market pressure: inflation concerns tied to the U.S.-Iran conflict, a wave of AI-related bond issuance from technology companies, widening fiscal deficits, and uncertainty around the Federal Reserve’s policy path. Goldman Sachs data cited in the report showed AI-related bond issuance has already reached $489 billion this year, far above an earlier estimate of about $322 billion for all of 2025.
The Congressional Budget Office expects federal net interest payments to rise to 3.3% of GDP this year and 4.6% by 2036, well above the 50-year average of 2.1%. At current levels, nearly $1 out of every $5 in federal revenue is already going toward interest payments. If yields stay elevated, those interest-cost projections may need to move higher.
Michael Strain of the American Enterprise Institute said, 「The core issue is not rising rates themselves, but the fiscal deficit. If there is only one thing to focus on, it should be the deficit outlook over the next 10 years.」
Political pressure builds as Iran tensions keep oil elevated
The report said pressure is falling more directly on Donald Trump. He had previously promised lower mortgage rates, and Treasury Secretary Bessent had tried to push down the 10-year yield indirectly through deficit reduction efforts and foreign-exchange intervention, but the market has not responded the way policymakers wanted. Zach Griffiths of CreditSights said the Treasury secretary’s actions so far have been underwhelming, which itself is one reason the rise in yields could continue. Higher borrowing costs are also being passed through to mortgages and corporate loans.
The possibility of a U.S.-Iran ceasefire is fading quickly, according to the report. Iranian Foreign Minister Araghchi rejected a ceasefire and said he would accept only the end of the war. On the U.S. side, officials said Trump had asked Vice President Vance, Steve Witkoff and other envoys to pause contact with Iran. Trump also said the naval blockade was effective and that the Strait of Hormuz was operating normally, though the U.K. Maritime Trade Operations organization reported that an unmanned cargo vessel had been struck by unidentified munitions. The United Arab Emirates announced a full halt to trade, commercial and financial dealings with Iran and said it had detected two ballistic missiles launched from Iran.
Oil has remained elevated as a result. Higher oil prices can lift inflation expectations, make it harder for the Federal Reserve to cut rates, and keep pressure on both bonds and growth stocks. Keith Lerner of Truist said markets had been able to look past rising yields because earnings were still strong, but once earnings season fades, yields themselves are likely to become a larger focus. If bond-market volatility persists, the direct challenge to equities may intensify.
AI debt worries hit semiconductors, memory and optical names
AI-linked hardware names were sold aggressively over the latest session. The Philadelphia Semiconductor Index fell 4.98%, its largest one-day drop since July 29, and every component in the index finished lower. Memory, optical communications and AI cloud-service stocks were among the weakest groups.
The theme driving the move was what the report called AI 「debt-ization.」 The Wall Street Journal reported that nine large technology companies are tied to roughly $3 trillion in off-balance-sheet AI commitments. At the same time, AI-related bond supply has reached $489 billion this year, well above the roughly $322 billion estimate for all of 2025. The market is increasingly focused on how much companies are borrowing to build data centers, buy chips and expand computing capacity.
Goldman Sachs trader Rich Privorotsky said rising rates are turning into a supply problem, with large sovereign deficits and more than $1 trillion in annual AI capital spending crowding out financing for the real economy.
Credit markets have already started to reflect that stress. High-yield tech bond spreads widened to about 474.9 basis points, while investment-grade tech bond spreads reached 136.6 basis points, 17 basis points above the broader industry average. Nvidia CDS rose to 80.3, nearly matching Meta at 84.3. A financing deal by Blackstone-owned QTS Realty Trust for a Microsoft data center also illustrated the shift: demand was strong, but the final yield reached 7.228%, close to junk-bond territory, showing investors now want much more compensation to fund AI infrastructure debt.
Investors are asking whether AI spending can turn into profit
Markets are also reassessing whether heavy AI capital spending can generate returns. OpenAI posted about $6.7 billion in second-quarter revenue, up 18% from the prior quarter, but its operating loss widened to $12.3 billion. Anthropic reported revenue of more than $11.6 billion, double the prior quarter, and recorded a small adjusted operating profit. Investors are comparing which companies are still funding growth with large losses and which are already showing the ability to make money.
Regulatory pressure is becoming another risk for the AI buildout. Pennsylvania is requiring data-center developers to solve their own power supply needs, Texas is requiring audits for data-center projects seeking grid access, and New York has paused new large-scale data centers. The issue is not only chips. It also includes power, land, pipelines and local approvals.
Stock moves show sharp divergence across the sector
Nvidia fell 2.34%. AI financing concerns weighed on the stock, but Bank of America argued the market may be deeply undervaluing the company. Analyst Vivek Arya estimated Nvidia was trading at a 34% to 50% discount to intrinsic value and kept a Buy rating with a $350 price target. At the same time, Bank of America estimated Nvidia has committed about $300 billion in capital to ecosystem partners, including roughly $70 billion in equity investments and about $230 billion in guarantees or other backstop arrangements. If AI demand slows, both growth and the balance sheet could come under pressure.
Chip stocks sold off broadly. ARM dropped 6.67%, Intel fell 6.58%, AMD lost 4.27%, while TSMC ADR and ASML ADR each fell more than 4%. Broadcom and Applied Materials each fell more than 3%.
Memory names gave back earlier gains. Micron fell about 7%, SanDisk dropped about 9%, Seagate fell more than 9%, and Western Digital declined about 7.4%. Kioxia ADR fell more than 13%, and SK Hynix ADR lost more than 9%. These names had been among the clearest beneficiaries of AI-related capital spending, which also made them especially vulnerable once valuations began to compress.
Optical communications names fell even harder. Applied Optoelectronics dropped about 15%, Coherent fell more than 12%, Lumentum lost about 10%, and Corning declined more than 7%. When investors start questioning the pace of data-center financing, optical modules, fiber and connectors are often repriced first.
AI cloud-service providers were also hit. CoreWeave fell more than 12%, TeraWulf dropped 11.25%, and Nebius lost more than 7% as investors worried that a high-rate environment would increase financing costs for computing rentals and data-center projects.
Meta fell 4.45%, with the stock hitting a two-week low. One reason was that a lawsuit brought by a coalition of 29 U.S. states over platform design and youth safety formally went to trial. The report said potential penalties could be as high as $1.4 trillion, and Mark Zuckerberg is expected to testify.
Apple rose 1.45%, standing apart from the broader AI hardware decline. The company agreed to revise its European Union App Store commercial rules, including lower commissions and changes to the core technology fee structure. The market took that as a positive sign that regulatory uncertainty had eased. Apple’s relative distance from the most capital-intensive part of the AI buildout also became more noticeable, since it has not joined the large-scale data-center spending race and instead relies on partners for AI services.
Baidu’s U.S.-listed shares fell 12.73% after second-quarter revenue and profit missed expectations. Traditional marketing remained a drag. Even though AI revenue contributed a larger share, the market stayed cautious about the path from capital spending to profit. Alibaba rose instead, showing that investors are pricing Chinese tech companies differently based on their perceived ability to monetize AI.
Among other large companies, Microsoft rose 0.27% and Google gained 0.06%. Google won a $10 million bid for a large amount of non-consumer data from bankrupt Spirit Airlines to train AI models. Oracle fell 2.63% after the natural-gas pipeline application tied to the 2.5GW Jupiter data center serving OpenAI was rejected twice in New Mexico. The developer plans to reroute via federal land, and the start date has been pushed back to February 2027. Amazon closed down 0.71% after proposing to raise its Louisiana data-center investment from $12 billion to $18 billion. Johnson & Johnson rose 3.33% to another record high, while Eli Lilly and other pharmaceutical shares stayed near their highs.
Key events on the calendar
August 19
- The U.S. is set to impose tariffs on some Canadian products. The White House said on July 20 that it would add a 50% tariff on selected Canadian dairy products, alcohol, clothing and furniture, citing what it called 「discriminatory measures」 in Canada’s auto trade with the U.S.
- The Seoul AI Summit will run from August 19 to August 21, with participants including Google DeepMind, Google Cloud, Microsoft Research, Nvidia, LG AI Research and Hyundai Motor. Markets will watch for signals tied to large models, AI cloud, autonomous driving, AI chips and enterprise applications.
- The World Robot Conference will be held in Beijing from August 19 to August 23, featuring humanoid and industrial robotics offerings from Unitree, UBTECH, SIASUN, Galaxy General and Tiangong.
- Earnings are due from HKEX, Kuaishou, Hengrui Pharma, ZTO Express, Kingsoft, Kingsoft Cloud and Weibo. Kuaishou’s 19:00 earnings call is expected to draw attention to e-commerce GMV, ad recovery, margins and AI video tools. Investors are also watching HKEX trading turnover, IPO reserves and derivatives, while Kingsoft Cloud is seen as a read-through on AI cloud demand among U.S.-listed Chinese firms.
August 20
- At 01:00, the U.S. Treasury will auction 20-year bonds. After last week’s jump in 10-year and 30-year auction yields, demand metrics including the bid-to-cover ratio and overseas participation will serve as a major test for the bond market. Weak demand could push the 30-year Treasury yield above 5.35%.
- At 02:00, the Federal Reserve will release minutes from its July policy meeting. Markets will focus on internal discussion around inflation, especially energy-driven inflation, and whether some policymakers favor rate hikes. A hawkish tone could drive long-end yields higher, while greater concern about slowing growth could ease the pace of the rise.
- At 09:00, China will release its one-year loan prime rate. If July economic data had been soft, the decision will be treated as an important policy signal. A cut could support property-linked shares, consumption, Hong Kong internet stocks and high-dividend assets. An unchanged rate could shift attention toward reserve requirement cuts, fiscal expansion or more property support measures.