STORY: Shares of Oracle ended nearly 11% lower on Thursday as the company's massive spending and weak forecasts amplified doubts over how quickly its big bets on AI will pay off.
It vaulted into the AI infrastructure race this year thanks to a $300 billion deal with OpenAI.
But the deal has also tethered the company's fortunes to the ChatGPT maker, with shares sliding in recent weeks over concerns that Google is pulling ahead of OpenAI.
CFRA Senior Equity Analyst Angelo Zino says the stock drop was warranted.
"So we think the actual reaction to the stock price is justified and the biggest reason is the earnings call just didn't alleviate a lot of the investor concerns that are out there, whether it be tied to financing or some of the concentration risk tied to OpenAI. You know, those concerns remain and as a result, you're seeing a sell in news after the earnings quote."
The disappointing predictions from Oracle show the uneven returns from the nascent technology that many business leaders believe is the future but has so far delivered limited productivity gains.
Optimism about the AI trade has in recent months given way to fears that the frenzy driving up stocks to sky-high valuations has turned into a bubble reminiscent of the 1990s dot-com boom.
Zino says he isn't worried about the technology sector overall.
"I think there are going to be some pockets of concerns in this market, and Oracle is one of those concerns because of how closely tied they are to OpenAI and whether or not those OpenAI commitments can be met is absolutely a concern in this market. But overall, from a broader perspective, and you start thinking about this AI trade, as long as we continue to see new use cases being applied from AI, the demand will be there, and we think this kind of, you know, upward momentum we think will be sustained here."
Tech executives have argued the bigger risk in AI now is underinvesting, not overspending.
