Recently, the artificial intelligence (AI) stock market has experienced a downturn due to concerning updates from Oracle and Broadcom. This has reignited worries about valuations and the possibility of an AI bubble. Despite this, many investors remain optimistic about the future of AI.
Oracle's shares dropped as much as 17% after the company announced that its capital expenditures for fiscal 2026 are expected to be $15 billion higher than initially estimated. Additionally, Broadcom's shares fell over 11% after the company warned that growing sales of lower-margin custom AI processors are affecting profitability.
The decline in Oracle and Broadcom shares had a ripple effect on other tech stocks, causing the tech-heavy Nasdaq to sink 1.4% and the S&P 500 Index to fall 0.9% on Friday afternoon. However, some investors believe that this turbulence is not a sign of a sustained decline.
Chuck Carlson, CEO of Horizon Investment Services, stated that he still thinks the AI trade is intact and that this week's events are similar to previous short-term sell-offs in the AI market. He does not recommend selling AI-exposed stocks and believes that the outlook for many such stocks remains solid.
Investors are becoming more selective in the AI space, with less willingness to reward spending on AI without clear returns. Mark Hackett, chief market strategist at Nationwide, noted that the positive correlation between aggressive capital spending and stock prices has changed significantly over the past couple of months.
Even investors who question the AI trade are wary of betting against it. Michael Burry, a famed investor, has been critical of tech heavyweights, including Nvidia and Palantir Technologies, but many investors believe that the AI story is still intact. According to Peter Hillerberg, cofounder of Ortex Technologies, investors have shown a pick-up in appetite to short smaller and mid-cap AI names, but the largest AI beneficiaries remain only lightly shorted.
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