The day after Oracle (ORCL) posted fiscal second-quarter results, shares closed down by 10.83% to $198.85. At the open on Thursday, ORCL stock traded at around $188. Buyers stepped in to take advantage of the panic selling.
Will the database software giant’s drop set off panic in AI-related names?
Investors in strong AI players like Nvidia (NVDA), Microsoft (MSFT), Amazon (AMZN), or Meta Platforms (META) should not assume that an AI bubble exists. Capital expenditures are growing as Broadcom (AVGO) posted strong results. In Q4, revenue grew by 28.2% Y/Y to $18.02 billion. Free cash flow of $7.47 billion accounted for 41% of revenue.
An AI bubble might exist for speculative firms like BigBear.ai (BBAI). The short float against this firm is at 21.3%. Similarly, CoreWeave (CRWV) attracted a 10.89% short float, while Nebius Group (NBIS) has a 14.44% short float.
As the race to offer the most powerful AI solutions continues, the market will have winners and losers. Companies that have unmanageable debt, persistently negative cash flow every quarter, and rising losses are most likely to fail.
Your Takeaway
Investors should not expect companies with a market capitalization of over $1 trillion to break down any time soon. They have revenue sources that do not rely on AI.
Oracle’s struggle might prove temporary. The firm is investing heavily to increase its capacity so that its AI servers meet demand.
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