Key insights
- Oracle's upcoming Q4 earnings report is a critical test for the AI trade, which is showing signs of weakness with semiconductor stocks wavering. A negative market reaction to strong Oracle results could signal a summer correction, especially given concerns about AI infrastructure capital needs and the narrow concentration of the AI rally in a few key stocks. This could indicate broader market vulnerability if speculative moves falter.
The AI trade continues to stand on unsteady ground this week as semiconductor stocks waver. Oracle's (ORCL) fiscal fourth quarter earnings are due out after Wednesday's market close, which could ultimately be a tipping point for the AI sector.
JonesTrading chief market strategist Michael O'Rourke speaks with Yahoo Finance Executive Editor Brian Sozzi about his outlook on the AI sector.
Last week we had a negative reaction. Broadcom crushed it. Didn't like that, didn't like to see that. Never like to see it when a company comes out with good earnings, stock gets smashed. Good job support. Uh market gets smashed on Friday. Is Oracle the next potential shoe to drop here? If they come out today with a strong quarter and the market reacts negatively, does that sit would that signal to you that we are going into a a summer correction zone?
I I would say so. Uh Oracle's obviously a pivotal company. OpenAI is a key partner of theirs. People are worried about Open AI, especially with the SpaceX deal coming. Um so it's going to be something to watch and you know, as as I said earlier, like there's just companies need to raise capital for their AI buildouts and they're the fear that Oracle is another one of these companies. So if this supply keeps coming on the market, it's going to be an issue for investors to digest.
Michael, what what haven't you liked about the trading action the past week? What stood out to you?
Uh it's just it's way too narrow. Uh the S&P uh semiconductor industry group is responsible for 60% of the S&P 500 lead this year and that's just too narrow group and too concentrated. Honestly, all the earnings growth in that group comes from three stocks, which is Nvidia, Micron Technology and Broadcom. But uh the rally is occurring through all 19 stocks in that group or 18 or 19. So, you know, you have a lot more speculative moves out there that are driving the S&P 500 higher.