Wall Street futures slide as Oracle’s forecast revives AI bubble fears

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By Johann M Cherian

Dec 11 (Reuters) – U.S. stock index futures tumbled on Thursday after Oracle’s forecasts raised fresh concerns about hefty AI spending and outweighed optimism over a less hawkish tone from the Federal Reserve.

Oracle <ORCL.N> slumped 11.4% in premarket trading after its quarterly forecasts fell short of analyst estimates and the company said annual spending would rise by $15 billion compared with its earlier expectations. 

The cloud company gained significant attention earlier this year after announcing deals to build AI cloud data centers for OpenAI.

However, its shares were on track for their biggest quarterly loss since mid-2002 on worries that heavy reliance on debt financing could fuel an AI bubble similar to the dotcom bust of the early 2000s.

“Oracle has been at the epicentre of the AI financing debate, lacking the mammoth cash flows of the more traditional cloud giants,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

Shares of other artificial intelligence companies also fell.

Chipmakers Nvidia and Broadcom fell 1.7% each, while hyperscalers such as Microsoft and Amazon.com dropped 0.7% each and CoreWeave declined 3%. 

AI bubble concerns also hurt crypto stocks such as Strategy lost 2.6% and Bit Digital fell 3% as bitcoin briefly slipped below $90,000.

At 05:50 a.m. ET, Dow E-minis were down 103 points, or 0.21%, S&P 500 E-minis were down 38.75 points, or 0.56% and Nasdaq 100 E-minis were down 199.25 points, or 0.77%.

Wall Street’s fear gauge, the CBOE volatility index, climbed 0.36 points to 16.13.

Meanwhile, the Federal Reserve lowered borrowing costs by 25 basis points as expected on Wednesday. Although, Chair Jerome Powell signaled a pause on further easing, investors were relieved that rate hikes were not on the horizon, at a time when markets expect higher interest rates in other developed economies by the end of 2026. 

Traders see at least 50 bps of monetary easing next year on expectations that U.S. President Donald Trump’s appointee to the Fed Chair will likely be a policy dove. White House economic advisor Kevin Hassett is the front-runner for the job. 

“We’re not surprised to see near-term optimism in the markets given that the Fed continues to cut rates even though the economy is growing,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.

“However, we think the rose-colored glasses may come off once investors realize that the path to lower interest rates may take longer – or may not materialize at all – to the extent that they believe it will.”

Thursday will bring a weekly report on jobless claims that will offer insight into the health of the labor market ahead of the keenly awaited official non-farm payrolls report expected early next week.

The correlation between equities and the world’s most valuable cryptocurrency has increased significantly this year.

(Reporting by Johann M Cherian in Bengaluru; Editing by Sriraj Kalluvila and Tasim Zahid)