ORCL
Oracle Corp
A Key Moment for AI Stocks is coming this week. It has nothing to do with Nvidia.
Oracle will be the pivotal event this week, after they announce earnings Wednesday after-hours.
The market’s focus on AI growth has widened from just looking at Nvidia’s chip demand.
Wall Street is rightly concerned about how sustainable the growth in data center demand is, and investors are becoming increasingly vigilant of demand signals from a host of key companies
The canary in the coal mine is Oracle.
The Nasdaq 100 now trades at >26x forward earnings for the coming 12 months... this is unquestionably high.
The reason: AI capital investment.
If tech services companies decide to slow down their investments in data centers, shares of chip makers and the many manufacturers that build AI infrastructure could tumble.
That would equate to trillions of dollars worth of market value, and it would certainly hit the Nasdaq.
That is why Oracle’s earnings are in the spotlight right now.
The market is also jittery about what Oracle says about demand from OpenAI. The companies agreed to a 5-year contract beginning in 2027, under which Oracle will provide software to OpenAI for $300B.
Wall Street questions OpenAI’s ability to make all of these payments over time. If OpenAI can’t, it will hit sales at Oracle and other OpenAI partners and could validate the market’s fear that AI is a bubble that will eventually burst.
The problem, which we've all written about here, is that OpenAI is not profitable, and has several commitments to buy hundreds of billions of dollars worth of services and chips from other companies.
There's a possibility that Oracle could become the poster child for overspending and overcapacity in data centers. The market will be looking for:
Strong financials on topline/bottomline
provide aggressive guidance on future orders
After Oracle reports, Broadcom will report on Thursday, which will give another glimpse into chip demand.