From Oracle to Broadcom, the Concerns About Artificial Intelligence Stocks Are Starting to Pile Up

Core Insights - The stock market has seen significant influence from artificial intelligence (AI) over the past three years, but investor sentiment is shifting as concerns about high valuations and sustainability grow [2][3]. Company Performance - Oracle reported over $450 billion in remaining performance obligations due to its rapidly growing AI cloud services, which cater to companies needing data centers for AI applications [5]. - Despite a strong quarterly earnings report, Oracle's stock has retraced due to concerns about the need for $38 billion in debt to build necessary data centers and lower-than-expected profit margins of 10% to 20% in its AI data center business [6]. - In its most recent earnings report, Oracle's revenue of nearly $16.1 billion fell short of consensus estimates, leading to a decline in stock price and a significant increase in five-year credit default swaps on its debt [7]. Industry Trends - Broadcom reported strong earnings but disappointed investors with guidance indicating a decline in gross margin and concerns about understated AI product backlog [8]. - The overall sentiment in the market is questioning whether the substantial capital expenditures (capex) on AI-related infrastructure will yield adequate returns, with estimates suggesting that building a 1-gigawatt data center requires around $80 billion [11]. - There is a growing belief that the resources required for AI may be limited, and the anticipated returns on investments may not materialize as quickly as investors had hoped [12].