Stocks dropped sharply on Wednesday as jitters about the booming artificial intelligence sector once again returned to the top of investors’ minds.
The catalyst for the tumble was, once again, a story about cloud computing giant Oracle.
Before the opening bell rang, the Financial Times published a story headlined: « Oracle’s $10bn Michigan data centre in limbo after Blue Owl funding talks stall. »
Blue Owl is a fund that has been the « primary backer for Oracle’s largest data center projects in the U.S., » according to the report.
In a statement Oracle said « the FT story is incorrect, » but confirmed that Blue Owl was not part of the funding talks.
« Our development partner, Related Digital, selected the best equity partner from a competitive group of options, which in this instance was not Blue Owl, » a spokesman for Oracle said. « Final negotiations for their equity deal are moving forward on schedule and according to plan. »
« The notion that Blue Owl walked away is unequivocally false, » Related Digital said in a statement shortly after Oracle’s. The company said it expects « to deliver the project on schedule. »
Despite the denials, the lack of a publicly identified funding partner for the project rattled investors and stoked fears that Oracle’s recent stumbles could spread to the rest of the AI ecosystem.
As of 1:10p.m. ET, Oracle shares were down nearly 4.5%. The stock is now down more than 40% in just the last three months, but still clinging to an 8% overall gain this year.
Oracle’s drop dragged other AI-related stocks lower as well. Some of the worst performers on the Nasdaq 100 index included chipmakers such as Broadcom and Arm Holdings, which were both down around 5%.
The Nasdaq Composite also slid more than 1%. The S&P 500 fell 0.7%.
Despite Wednesday’s drama, major indexes remain well in the green for the year that’s coming to a close. The S&P 500’s year-to-date gain is more than 14%, and the tech-heavy Nasdaq Composite’s is more than 18%.
Nvidia, the largest public company in the world and the poster child for the AI boom, dropped about 3% Wednesday morning. Advanced Micro Devices, whose business is similar to Nvidia’s, also sank 3.8%.
The ripple effect did not stop there, however.
GE Vernova, a manufacturer of gas turbines and other power systems for data centers, also slid 7.7% and was the worst S&P 500 stock. Constellation Energy and energy provider Vistra also tumbled more than 6%.
Despite Wednesday’s jitters, John Higgins at Capital Economics said he and his colleagues do not believe, « the AI rally is dead yet, and expect it to last through 2026. »
« That view underpins our forecasts for strong gains in those equity markets most exposed to it, particularly the US and some of those in Asia, » he wrote in an email Wednesday.
Yet Higgins cautioned, « we don’t think the good times for tech will last forever. » He said that Capital Economics suspects « valuations will eventually become sufficiently stretched that a correction is likely, » but not until 2027.
Investors could get a fresh read on the AI industry after the closing bell on Wednesday, when chipmaker Micron reports earnings.
Source link
