Oracle and Broadcom's one-two punch hurts the AI industry, but investor optimism persists

NEW YORK, Dec 12 (Reuters) – A wild trade in favor of artificial intelligence stocks was hurt by a series of troubling updates from Oracle and Broadcom, reigniting concerns about frothy valuations and an AI bubble.

Still, investors say the reasons for their optimism about AI remain the same, and many are cautious about bringing in top executives.

This year, as AI technology becomes more widespread, investors have flocked to AI-related companies in hopes of making American companies more efficient.

But some investors feel that AI stocks are overvalued. Celebrities like Michael Burley have been bearish, comparing the recent AI boom to the dot-com era of the 1990s. But for now, short selling has been limited to small and medium-sized companies, and there are few imminent bearish bets against the AI giants.

Recent concerns have centered on Oracle and Broadcom. Oracle stock has fallen as much as 17% since Wednesday's close after the company, which is borrowing money to finance ambitious AI investments, warned that fiscal year 2026 capital spending would be $15 billion higher than expected in September.

Oracle shares came under new pressure Friday after a Bloomberg report said the company had pushed back the completion date of some of the data centers it is developing for OpenAI from 2027 to 2028.

Broadcom shares fell more than 11% on Friday, a day after the chipmaker warned that rising sales of low-margin custom AI processors were weighing on profitability, sparking concerns that the business' profitability would decline.

Hits to Oracle and Broadcom weighed on other tech stocks during the day as investors worried about AI spending and the lack of a clear timeline for investment returns. On Friday afternoon, a day after closing at a record high, the tech-heavy Nasdaq was down 1.4%, and the S&P 500 index was down 0.9%.

“We still think the AI trade is intact,” said Chuck Carlson, chief executive officer of Horizon Investment Services in Hammond, Indiana. “I don’t think this is the start of a sustained, significant decline.”

This week's turmoil in AI stocks looks similar to the short-term sell-off in the wake of the Deep Seek news earlier this year and the “crash” in other AIs in 2025, Carlson said.

He was not recommending that clients sell stocks exposed to AI, such as Nvidia (NVDA.O).opens a new tabHe said the outlook for many of these stocks remains strong.

“Could the performance of these stocks be further subdued[heading into 2026]? Yeah, but I mean they're gangbusters and it's hard to sustain that,” he added.

Oracle declined to comment Thursday on stock price movements or AI trading. Broadcom did not immediately respond to a request for comment Friday.

Further scrutiny

Oracle Field Office on Wilson Boulevard, Arlington, Virginia, USA

Some market participants say investors are becoming more selective about the AI sector and less willing to reward AI spending indiscriminately.

“You see there's a positive correlation between very aggressive capital spending and stock prices…that's changed quite a bit behind the scenes in recent months,” said Mark Hackett, chief market strategist at Nationwide.

Late November, META (META.O)opens a new tab Shares fell 11% after the Facebook and Instagram parent company predicted “significant increases” in capital spending next year due to aggressive data center construction and other AI investments.

After the launch of the AI assistant ChatGPT in November 2022, capital investment, which is a key element of AI trade, has pushed up stock prices.

“I think the change in leadership is completely justified and is currently underway. But that doesn't mean the AI story is going to disappear like a light switch,” Hackett said.

short story

Even investors who have doubts about AI trading are wary of betting on it.

“I believe today's stock market is in a position where the upside could be extremely large,” said Barry, a prominent investor whose successful bet on the U.S. housing market in 2008 was dramatized in the movie “The Big Short.”

Berry has recently become increasingly critical of tech giants such as Nvidia (NVDA.O).opens a new tab and Palantir Technologies (PLTR.O)opens a new tabcasting doubt on the cloud infrastructure boom. He has a short position in Palantiropens a new tab.

Two leading U.S. fund managers said on condition of anonymity that concerns about a bubble are overblown. They said Big Tech's “hyperscalers” continue to struggle to meet the constant demand for more data centers.

“In the entire basket of 61 AI stocks, we have yet to see any positioning where investors are actively betting on the AI bubble bursting,” said Peter Hillerberg, co-founder of data and analytics firm Ortex Technologies.

Investors are increasingly willing to short small- and mid-cap AI stocks, but the biggest AI beneficiaries remain short sellers, Ortex data showed as of Thursday.

“We're seeing a spike in short interest on a stock-by-stock basis around earnings and headline risk in certain AI stocks, including Oracle, and some of these trades will naturally look prudent after the sharp post-earnings moves,” Hillerberg said.

“But taken together, these data look more like targeted skepticism in individual AI stories than a broad, coordinated effort to get to the top of the AI bubble.”

Report by Saqib Iqbal Ahmed and Lewis Krauskopf. Additional reporting by Anirban Sen in New York and Twesha Dixit in Bengaluru. Editing: Megan Davis and David Gregorio

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