The AI Rout Is Flashing Amber: VIX, CoreWeave Debt and the $140 Billion Flight to Cash

A rout in technology stocks as confidence in the AI trade falters could test the resilience of global financial markets from New York to Taipei, and traders are watching a set of stress indicators that are starting to flash amber — though not yet red.

The tech-heavy Nasdaq 100 rose nearly 2% on Friday, clawing back some of Thursday's more than 6% plunge, but traders remain on edge. Policymakers have long warned of the risks from an AI boom unraveling, and investors and regulators are keeping a close watch on market stress indicators.

Fear is up. Wall Street's fear gauge, the VIX index of US stock market volatility, rose to over 28 on Thursday, its highest since late March, and was holding close to that level on Friday.

Perhaps the biggest harbinger of potential trouble in the AI space is a surge in insurance protection against a debt default. The cost of insuring debt issued by neocloud firm CoreWeave has spiked into distressed territory, with five-year credit default swap spreads surging past 1,000 basis points to record highs.

A flight to safe havens is a clear sign of increased market angst, although daily moves are also relatively modest. US 10-year Treasury yields have fallen 50 basis points from peaks above 5% hit last month, on concerns about high debt, rising inflation and competition for capital as tech firms ramped up bond sales.

Investors are also moving money into cash. Bank of America's Flow Show report on Friday said cash funds saw a $140 billion inflow in the week to Wednesday, the seventh biggest on record.

The selloff was set off by fears that a Democratic sweep in the US midterm elections would lead to regulation and a slowdown of the AI boom, and that the massive spending on AI infrastructure will not yield sufficient returns. The Nasdaq fell 5.5% on Thursday in its biggest drop since the tariff-triggered "Liberation Day" rout in 2025, and on Friday in Asia, South Korea's KOSPI slumped 6% and Taiwan's benchmark slid 4.5%.

For now, the alarm signals are amber, not red. But with the VIX elevated, CoreWeave's debt insurance at record levels and $140 billion rushing into cash in a single week, traders are bracing for what comes next — and watching whether the AI trade's wobble becomes something bigger.

Sources

• Duke FM (Reuters) — AI rout sets off market alarm signals as traders brace for what's next