Oracle's AI Spending Worries Weigh on Wall Street Amid Mixed US Market Trends
Despite a generally upward trend across most U.S. stocks, Wall Street faced headwinds recently, primarily due to a significant plunge in Oracle's shares. Investors are scrutinizing the tech giant's substantial spending on artificial intelligence (AI) technology, questioning the ultimate return on these massive investments.
Oracle's Dive Contrasts Broader Market Moves
On a recent Thursday, the S&P 500 saw a slight decline of 0.4%, moving further from its October peak. In contrast, the Dow Jones Industrial Average gained 233 points (0.5%) by late morning Eastern time, while the Nasdaq composite dipped by 0.7%. Oracle emerged as a major drag on the market, experiencing a sharp 14.5% decline. This drop occurred despite the company reporting better-than-expected profits for its latest quarter, though its 14% revenue growth slightly missed forecasts.
AI Investment Doubts Ripple Beyond Oracle
The core concern revolves around Oracle's aggressive AI investments. Analysts expressed surprise at the projected spending for the current fiscal year and pondered the funding strategy. This skepticism isn't isolated to Oracle; it reflects broader doubts within the AI industry, even as billions continue to pour in. Even Nvidia, the leading chipmaker synonymous with the AI boom, saw its shares fall by 2.8%, becoming the single heaviest weight on the S&P 500 that day.
Oracle Chairman Larry Ellison emphasized a "chip neutrality" policy, aiming for agility by utilizing "whatever chips our customers want to buy." He acknowledged the rapid evolution of AI technology, stating, "There are going to be a lot of changes in AI technology over the next few years and we must remain agile in response to those changes."
Positive Economic Signals Buoy Other Stocks
Conversely, other U.S. stocks found support from easing Treasury yields in the bond market. The yield on the 10-year Treasury dropped to 4.10% from 4.13% the previous day, a move that typically encourages investors to allocate more funds to stocks due to lower bond interest. This yield decline followed a report indicating a larger-than-expected jump in U.S. unemployment benefit applications, potentially signaling increased layoffs.
Furthermore, the Federal Reserve's third interest rate cut of the year, coupled with hints of another in 2026, delighted Wall Street. Lower rates are generally seen as economic boosters that can inflate investment prices, albeit with potential inflation risks.
Company-Specific Highlights and Lowlights
Among the market's strong performers was The Walt Disney Co., which surged 2.1%. This came after OpenAI announced a three-year partnership, allowing Disney to leverage over 200 characters from its vast library (Disney, Marvel, Pixar, Star Wars) for user-prompted social videos. Disney also committed a $1 billion investment to OpenAI.
However, not all companies shared in the gains. Oxford Industries, parent company of Tommy Bahama and Lilly Pulitzer, tumbled 15.1%. Its CEO, Tom Chubb, reported a weaker-than-anticipated start to the holiday shopping season, noting customers' "highly value-driven" behavior, leading to a cut in their full-year revenue forecast. Vera Bradley also plunged 26% after reporting a larger-than-expected loss.
Internationally, European indexes edged higher, while most Asian markets declined. Japan's Nikkei 225 fell 0.9%, notably impacted by a sharp drop in SoftBank Group Corp., a major AI investor.
