Wall St mixed as Oracle earnings portend rocky ride for AI

Stocks on Wall Street were mixed as the tech-heavy Nasdaq Composite sank after Oracle’s aggressive debt-funded investment in artificial intelligence infrastructure reignited fears among investors that the burgeoning sector still has a long way to go before generating returns from all this spending.

Still, that didn’t deter Walt Disney Co from pumping US$1 billion into ChatGPT maker OpenAI, with the chatbot developer getting a licence to use the storied media group’s characters, while Broadcom’s earnings after the bell will provide a bellwether for chipmaker Nvidia.

Meanwhile, the Dow Jones Industrial Average touched a new record with Visa leading the blue chip index higher in late trading, and European stock markets rallied as travel and leisure companies and miners were among those driving gains.

And Australian futures are pointing to a strong start to the day for the ASX when trading opens across the Tasman, while domestically Statistics New Zealand’s latest credit and debit card spending figures and the Bank of New Zealand-BusinessNZ manufacturing gauge are due.

Where does it end?

Oracle shares slumped 12% in late trading after the software giant’s projected capital spending on AI infrastructure created consternation for some investors feeling uneasy about the pace of investment in the sector and the slow pay-off.

That weighed more broadly on the tech-heavy Nasdaq, which was down 0.6% in late trading, with the likes of Nvidia, Amazon and Apple on the red side of the ledger. Semiconductor firm Broadcom was down 2.5% in late trading, with its quarterly result after the bell set to provide more insight into the sector. The S&P 500 was marginally lower.

“The rally in US equities after the Federal Reserve’s interest-rate cut has lost momentum following disappointing results from Oracle which weighed on technology shares,” BNZ senior interest rate strategist Stuart Ritson said in a note.

Oracle’s result weighed on tech stocks across Asia yesterday, with ASX-listed Xero and WiseTech Global declining, although New Zealand’s tech sector was more mixed as Serko rallied and Gentrack and Vista Group International declined.

Still, AI remains a hot sector with Disney investing US$1 billion into OpenAI and licensing its characters for use in the ChatGPT maker’s Sora video platform.

Meanwhile, the Dow Jones Industrial Average was up 1.3% in late trading while the Russell 2000 advanced 1.2% as investors start moving away from tech stocks and into more traditional sectors, continuing the more buoyant mood after the Federal Reserve’s rate cut yesterday. The volatility index, known as Wall Street’s fear gauge, eased 2.9%.

Visa and UnitedHealth were leading the Dow higher in late trading.

Stock markets across the Atlantic were broadly stronger, with the UK’s FTSE 100 index up 0.5%, Germany’s DAX 30 advancing 0.7% and France’s CAC 40 gaining 0.8%.

The good oil

Brent crude oil futures fell 2% to US$60.98 a barrel at 7am in Auckland after International Energy Agency projected a narrowing surplus as oil-producing nations scale back supply, while gold futures advanced 1.9% to US$4,306 an ounce.

The kiwi dollar rose to 58.17 US cents from 57.97 cents yesterday after data showed an unexpectedly sharp drop in the US September trade deficit due to a large increase in gold bullion exports which will unwind in the December quarter, while weekly US jobless claims crept higher.

That upbeat mood in equity markets is set to continue into the antipodes, with Australian futures pointing to a 1.1% gain for the S&P/ASX 200 index when trading opens across the Tasman.

Local data today include Stats NZ’s electronic card spending for November and the BNZ-BusinessNZ performance of manufacturing index.

New Zealand’s September quarter gross domestic product figures are due next week, with the Reserve Bank’s Kiwi-GDP prediction tool estimate growth of 0.8%, almost twice the central bank’s forecast.

Reporting by Paul McBeth. Image from Emiliano Vittoriosi on Unsplash.