Oracle's AI Overspend Sparks Market Jitters Amid Fed Rate Cut

On Thursday, global stock markets were rattled by Oracle's warning regarding AI profitability. Despite the Federal Reserve's interest rate cut, Oracle's disappointing earnings, fueled by a $15 billion AI overspend, spurred fears around tech valuations. The stock market response underscores broader concerns over AI investments' profitability.

World stock markets were uneasy on Thursday as Oracle, the cloud computing leader, issued a stark warning about AI-related profitability. This caution overshadowed the relief brought by the U.S. Federal Reserve, which had just cut interest rates for the third time in succession.

Oracle's financial melee saw its shares plummet by 12% even before the market's opening bell. This situation caused a 0.5% decline in Nasdaq futures, as notable AI-centric companies like Nvidia, Microsoft, and Amazon also saw their stock prices dip. Japan's Nikkei index was not immune, taking a hit overnight due to SoftBank's 7.5% drop, a partner in Oracle's Stargate data project.

The story highlights Oracle's central position in the AI expenditure debate, a concern exacerbated by its meager cash flows compared to tech giants such as Google, Amazon, and Microsoft. Analyst Matt Britzman from Hargreaves Lansdown noted that while the company managed a significant earnings beat via an asset sale, its escalating capital expenses and feeble cash flows sparked broader worries.

(With inputs from agencies.)