Key Highlights

● HPE fell Friday with no company-specific news as a broad tech retreat hit hardware makers.

● Its AI server business has tied the company more closely to the AI spending cycle.

● Reports said over $1 trillion was erased from chip and AI-related stocks over the week.

● Meta, IBM and Lam Research report Oct 21, with Western Digital following Oct 22.

Caught in the tech downdraft

Hewlett Packard Enterprise (NYSE:HPE) fell on Friday, one of many technology stocks that ended lower on the S&P 500. Market data showed a solid decline for the company, though the timing of that figure was unclear.

No company-specific news was reported for HPE. The stock moved with a broad technology selloff in which all but seven of the 75 tech stocks in the S&P 500 closed lower, according to market reports.

Hewlett Packard Enterprise sells servers, storage, networking equipment and hybrid cloud services to businesses and governments. Its AI server business, which builds systems packed with graphics processors for data centers, has tied the company more closely to the AI spending cycle.

AI hardware out of favor

The day's main theme was a reassessment of artificial intelligence spending. Market commentary said investors have moved from asking what AI can do to asking how its infrastructure will be financed. Debt-funded AI infrastructure companies were hit hardest, and the worries rippled out to suppliers of the hardware that fills data centers.

Fellow server maker Super Micro Computer (NASDAQ:SMCI) fell sharply, with market data citing caution about AI growth. Storage makers Seagate Technology (NASDAQ:STX) and Western Digital (NASDAQ:WDC) tumbled, and all 30 members of the PHLX Semiconductor Index fell. The index closed at 11,137.29. Market reports said more than $1 trillion was erased from semiconductor and AI-related stocks over the week.

One market commentator wrote, "The AI group is now splitting between companies that can fund the buildout themselves and those that have to borrow." The commentator added, "That is a change in character, and it's another reason the leaders no longer look like a safe haven."

Not every analyst saw a change in fundamentals. A senior software analyst at BofA Securities said, "First of all, this is more sentiment driven. This is not about fundamentals."

Software and chips both slid

The selling was not limited to hardware. Per market data, 41 of 45 stocks in a software basket fell, erasing roughly $130 billion in value. Palantir Technologies (NASDAQ:PLTR) tumbled, ServiceNow (NYSE:NOW) slid and Fortinet (NASDAQ:FTNT) fell to $168.62 late in the session. Advanced Micro Devices (NASDAQ:AMD) sank and Intel (NASDAQ:INTC) tumbled.

The S&P 500 fell 84.62 points to 7,659.44 after opening higher, with its steepest losses in the final hour. The Nasdaq Composite dropped 572.99 points to 26,140.03, and the Dow Jones Industrial Average slipped 175.28 points to 52,002.41.

Defensive rotation

While technology sank, other parts of the market gained. Six of the 11 S&P 500 sectors finished higher, according to market reports. Energy led, with Brent crude climbing $3.94 to $109.86 a barrel on attacks on tankers in the Strait of Hormuz. Utilities and consumer staples also rose, and health care hit records.

The VIX volatility index jumped 3.53 points to 19.99, after touching 22.31 intraday, its highest since June 11. The 10-year Treasury yield eased to roughly 5.1 but remained near its highest levels since 2002. Federal Reserve Chair Kevin Warsh, speaking at an IMF gathering in Bangkok, declined to preview the October decision. "I don't prejudge meetings," he said.

HPE Hardware Demand Reads Next Week

Hardware demand will be in focus next week as Meta (NASDAQ:META), a major data-center buyer, reports on Wednesday, Oct 21, along with IBM (NYSE:IBM) and Lam Research (NASDAQ:LRCX). The Federal Reserve's next rate decision is due Oct 28, and the PCE inflation report and the first estimate of third-quarter GDP follow Oct 29. Further out, Western Digital reports Oct 22 and Intel Oct 29.