U.S. stocks fall amid controversy over AI monetization due to Oracle

10/08 U.S. stocks fall amid controversy over AI monetization due to Oracle

The U.S. stock market started higher with still high expectations for the market. In the meantime, after indicators indicating high prices for employment deterioration were announced, the sale was digested. In particular, as the margin ratio for Oracle (-2.52%) fell sharply, concerns over AI monetization were highlighted and AI-related companies including semiconductors fell. Some economic defense stocks are showing strong differentiation. Meanwhile, while Tesla (-4.45%) announced a new car ahead of the close of the market, the fall was partially reduced (Dow -0.20%, Nasdaq -0.67%, S&P 500 -0.38%, Russell 2000 -1.12%, Philadelphia Semiconductor Index -2.06%)

• Variants: Job Insecurity, Price Concerns, and Oracle and AI Industries

The New York Fed’s September consumer expectations survey highlighted worsening labor markets and rising short-term inflation. Amid widespread job insecurity, expecting a 41.1 percent chance of unemployment rising in a year, the average wage growth rate was 2.4 percent, the lowest since April 2021, widening pessimism. In a year, inflation expectations rose from 3.2% to 3.4%, particularly the burden on food prices, and households’ expectations of future spending growth fell slightly to 4.7%. Of course, the current fiscal conditions are favorable due to rising stock markets, but they remain anxious about the future economy. The results suggest that the Fed is in a complex dilemma of seeking a policy balance between its conflicting goals of curbing inflation and stabilizing employment.

Meanwhile, Oracle’s decline is a factor in the overall sale of technology stocks. Media reports citing internal documents reported that Oracle’s AI cloud business division is very profitable. It posted $900 million in sales through server lease in the three months ended in August, but recorded a low gross margin rate of 14%. This is significantly below market expectations, and the margin may be lower when additional depreciation costs are considered in addition to high initial investment costs and operating costs (manpower, electricity, etc.). This shows that Oracle’s aggressive AI expansion is a problem in terms of profitability, contrary to expectations. However, the market expects that the continued impact will not be significant given that it was already known. In fact, Sitakfel announced it was a buying opportunity when Oracle fell sharply, and the related report greatly reduced Oracle’s fall

However, this low margin rate could lead to a controversy over monetization of the AI industry as a whole, so it is noteworthy. The 14% margin rate highlights the question that even the AI infrastructure business is difficult to generate high profits right now due to the high cost of purchasing and operating hardware. In the aftermath, semiconductor and AI-related stocks fell together, as low profitability worried about the possibility of slowing demand for AI hardware. After all, Oracle’s case strengthens the perception that AI grows, but this growth does not lead to high margins for everyone, and shows the difference between expectations for AI-related stocks and the actual profit structure.

Trump and Fed members also made remarks, which suggested that all furloughed workers due to the government shutdown would not be able to receive unpaid wages. If workers who were temporarily laid off due to the shutdown in the past were paid retroactively, news that Trump would not pay them escalated the index’s decline, provoking concerns about a slowdown in consumption in the future. Fed Director Steven Miran said he supports a sharp rate cut, estimating the neutral rate as low as 0.5%. Minneapolis Fed Governor Kashkari notes that there are some signs of stagflation through economic indicators. In addition, he argues that a sharp drop in interest rates would cause inflation to explode.

• Featured stocks: Oracle, Tesla, Semiconductor companies fall Vs. AMD, Palantir rise

Semiconductors: Oracle Falls On China Regulatory Concerns
AMD (+3.83%) surged after the announcement of its partnership with OpenAI the previous day, which continued to rise as investment companies continued to raise their targets. Nvidia (-0.29%) experienced increased volatility, falling as the controversy over AI monetization due to Oracle emerged. Broadcom (+0.27%) turned upward as backlash buying flowed in after falling due to controversy over AI monetization. Micron (-2.76%) was also sluggish. Semiconductor parts and equipment companies such as Ram Research (-5.90%), AMAT (-5.52%), TSMC (-2.77%) and ASML (-3.93%) also had Oracle issues, but in early trading, the U.S. House of Representatives China Special Committee called for stricter regulations, saying that China purchased $40 billion worth of equipment from major suppliers due to insufficient efforts to restrict China’s access to advanced chip manufacturing equipment. The Philadelphia Semiconductor Index fell 2.06%

AI Servers, Services: Dell Rises On Raising Profit Outlook, Most Other Drops
It rose sharply when Dell (+3.51%) raised its annual sales growth target from 3% to 4% to 7% to 9% on the back of AI demand, but the rise was partially reduced due to Oracle’s aftermath. Super microcomputer (+0.82%) also rose due to Dell’s effect, but returned some of the gains due to Oracle issue. Arista Network (-2.82%) also fell solidly. In particular, Seagate (-7.34%) and Western Digital (-4.27%) fell sharply due to profit-taking sales and regulatory issues in China. Most AI companies, including C3AI (-2.75%), Big Bear AI (-3.25%), and Coreweave (-3.75%) fell due to Oracle issue. IBM (+1.54%) rose on the news that it has formed a strategic partnership with Entropic.

Tesla: New Car Announcements And Disappointments For Sale
Tesla (-4.45%) falls on supply chain concerns caused by factory fires in aluminum companies ahead of new car announcements. Ahead of market close, Model 3 and Model Y standard versions were released, with Model 3 announced at $36,990.. Model Y announced at $39,990. Model Y has a base mileage of 320 miles, 40 miles shorter than the premium Model Y. Some investment firms say they have “no marketing creativity at all” and that the marketing department has an opinion on the new model