Dell leads an AI-hardware retreat as a downgrade and inflation data weigh

How far did Dell fall this week?

Dell Technologies (NYSE: DELL) shares tumbled 22.9% over the week that ended Friday, Oct. 16. The company lost $42 billion in market value. The stock closed Friday at $451.71, leaving the company worth $300 billion.

Why it matters: The losses came every day of the week. Dell slid 1.6% on Monday and fell 0.7% on Tuesday. It tumbled 11.3% on Wednesday, after a downgrade, and 6.8% on Thursday. On Friday the shares fell a further 4.6%.

By the numbers: Chip stocks fell with it. The iShares Semiconductor ETF (Nasdaq: SOXX) is a fund of chipmakers that trades on an exchange like a stock. It tumbled 11.8% over the week, including 4.1% on Friday.

Why did Barclays downgrade Dell?

Barclays cut its rating on Dell to Equal-Weight, the bank's neutral rating, on Wednesday. It also lowered its price target, the bank's estimate of where the stock may trade over the next year. A price target reflects the analyst's view and changes nothing about the company's business.

Barclays said Dell's valuation looked stretched. In plain terms, the bank judged the share price high relative to the company's prospects. The bank also said AI had done little so far to lift wider business spending on technology.

That spending point goes to the core of the AI-hardware story. If AI does not yet lift broader business tech budgets, sales growth at hardware makers may lag what their share prices assume.

How did the inflation data add to the pressure?

A government report showed September producer prices rose faster than economists expected. Producer prices are a gauge of wholesale inflation, or what businesses pay before goods reach stores. Reports said the annual gain was the biggest since 2022.

According to reports, the data lifted bets that the Federal Reserve might raise its benchmark interest rate at its next meeting. Reports described the chances of a hike as close to even. Higher rates can weigh most on fast-growing companies, whose value rests heavily on profits expected years from now.

By Thursday, chip and AI-hardware stocks were taking the heaviest losses. Dell tumbled 6.8% that day. Chip stocks in South Korea and Japan also fell steeply overnight before the U.S. session, reports said, on worries about AI spending.

Why did the Dow rise while tech stocks fell?

Money moved toward defensive stocks and older-economy companies, according to reports. The Dow Jones Industrial Average is a narrower index of large U.S. companies, weighted by share price. It rose 0.7% for the week, including 1.1% on Thursday.

Tech-heavy indexes went the other way. The Nasdaq-100 tracks the largest companies listed on the Nasdaq exchange and leans toward technology. It tumbled 5.5% for the week. The S&P 500 slid 1.9%.

Sector funds showed the same split. A technology sector fund fell 3.0%. A utilities fund rose 1.3% and a consumer staples fund gained 1.1%.

What do bond yields say about Fed rate-hike bets?

The bond market sent a more mixed signal. The 10-year Treasury yield, the yearly interest a bond pays as a share of its price, slid 15 basis points over the week, ending at 5.09%. Yields fall when bond prices rise.

Falling yields do not fit neatly with fears of a Fed hike. Reports tied Thursday's bond rally to renewed worries about economic growth. That leaves an open question: whether the Fed sees hot wholesale prices or a slowing economy as the bigger risk.

Shorter-term rates moved little. The 2-year Treasury yield fell 3 basis points, ending at 4.74%.

What could come next for the shares?

What’s next: The Fed's rate decision is scheduled for Oct. 28 at 2 p.m. Eastern time, followed by the chair's press conference. That decision may show whether this week's hike bets were right.

Before then, the University of Michigan's final October consumer survey arrives Oct. 23 at 10 a.m. It includes household expectations for inflation. On Oct. 29 at 8:30 a.m., the government releases an early estimate of economic growth for the quarter that ended in September. A September report on household income and spending comes out the same morning. It includes the PCE price index, the inflation gauge the Fed watches most closely.