Oracle's 11% Premarket Plunge After Earnings Miss Triggers Broad AI Stock Sell-Off
Oracle Earnings Miss Revives AI Valuation Concerns
The artificial intelligence (AI) sector experienced a sharp correction on Thursday, led by a dramatic premarket slide in shares of Oracle Corp. (ORCL). The cloud computing giant’s stock slumped to $197.33 in early trading, representing a decline of more than 11.5% from Wednesday’s market close, following the release of quarterly earnings that fell short of analyst expectations.
Oracle’s results, which included below-consensus sales figures and a significant upward revision to future spending, abruptly halted the market rally that followed the Federal Reserve’s latest interest-rate cut. The Fed had lowered its benchmark rate by a quarter-point to a range of 3.5% to 3.75%, a move that initially buoyed the market, with the S&P 500 closing nearly 0.7% up at 6,886.68 points on Wednesday.
Contagion Spreads Across Major Tech Stocks
As a bellwether for the AI boom, Oracle’s performance quickly triggered a broader sell-off across the technology sector, reviving concerns about expensive valuations and the sustainability of current AI spending levels. The market contagion affected several high-profile AI-related companies:
- Nvidia (NVDA), the dominant AI chipmaker, saw its shares drop around 1.6% to $180.80.
- Rival chip manufacturer Advanced Micro Devices (AMD) fell 1.73% to $217.60.
- Microsoft (MSFT) declined 0.70%.
- Meta Platforms (META) dropped 1.16%.
- Alphabet (GOOG) (Google) fell 0.6%.
- Amazon (AMZN) slid 0.8%.
- Even MicroStrategy (MSTR), a software firm with significant Bitcoin holdings, fell 2% in premarket trading.
Increased Spending Forecast Fuels Investor Anxiety
The primary catalyst for the investor panic was Oracle’s announcement regarding future capital expenditure. The company missed analyst estimates for third-quarter sales and profit, but more critically, it announced that spending in fiscal year 2026 would be $15 billion higher than the $35 billion forecast provided in September. This substantial increase in projected expenditure, likely aimed at funding the massive infrastructure required for AI cloud services, signaled higher costs and potentially thinner margins, fueling the renewed worries over tech-stock valuations.
“The market party after the Federal Reserve’s policy decision came to an abrupt halt within hours as a plunge in Oracle Corp.’s shares reawakened concerns over tech-stock valuations,” noted one analyst. “The fresh doubts on AI, as well as Powell’s latest suggestion that the Fed had acted sufficiently to help stabilize the labor market, are ramping up uncertainties in the final weeks of the year.”
Monetary Policy Context
The market reaction occurred despite a generally positive backdrop from the Federal Reserve. The central bank’s decision to cut interest rates by 25 basis points (bps) was accompanied by a less-hawkish tone from Chair Jay Powell. The Fed’s forecasts suggest the possibility of another quarter-point interest rate cut in 2026, followed by one more in 2027. However, Powell also indicated that borrowing costs are unlikely to drop further in the near term as policymakers await more official data on the job market and inflation trajectory.
The immediate focus, however, remains on the profitability and valuation of AI infrastructure providers. Oracle’s significant spending increase suggests that the race to build out AI capacity is becoming increasingly costly, forcing investors to reassess the risk-reward profile of companies heavily reliant on this growth trajectory. The average close price for ORCL over the past two years was $169.10, indicating that even after the 11.5% drop, the stock remains significantly elevated, reflecting the massive run-up in tech valuations prior to this earnings report.
