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HomeMarket NewsUS stock futures tank up to 400 points after Oracle spoils the Fed rate cut party
Oracle has triggered concerns on Wall Street that its debt-fueled AI expansion may not yield the desired results. Its remaining performance obligations, or those contracts that have been signed but revenue isn't recognised were up 5x from last year to $523 billion, majority of which comes from that one OpenAI deal worth $300 billion.
Futures on Wall Street have tanked in late hours trading on Wednesday after weak results from Oracle Corp. have yet again raised concerns over the heavy AI spends not yielding the desired returns.
Futures on the Dow Jones are down over 220 points, those on the S&P 500 are down 65 points, while Nasdaq futures are down nearly 400 points.
Shares of Oracle Corp. fell 11.5% in extended trading after its second quarter revenue missed expectations, while its EPS beat was aided by a one-time gain. The company's guidance is also in-line with what analysts had projected for the third quarter.
Oracle has triggered concerns on Wall Street that its debt-fueled AI expansion may not yield the desired results. Its remaining performance obligations, or those contracts that have been signed but revenue isn't recognised were up 5x from last year to $523 billion, majority of which comes from that one OpenAI deal worth $300 billion.
Oracle has already raised $18 billion through one of the largest bond issuances in tech history, and continues to issue investment-grade bonds, which are the highest among non-financial names, as per Citi.
A cost of protecting Oracle's debt against default for five years rose 0.05 percentage points to 1.246 percentage points a year, Bloomberg reported quoting ICE Data Services.
“Oracle really matters because it is the harbinger of the AI capex boom,” William Smith, senior vice president and director of credit at AllianceBernstein LP said on Bloomberg TV on Wednesday. “This repricing in debt markets is very consistent with the view that risks are building.”
The fall on Wall Street's futures completely offsets the gains seen in regular trading on Wednesday after the Fed cut interest rates on expected lines, while also announcing a $40 billion bond buying program per month. Dow Jones had ended 500 points higher, and awaiting results of Oracle, the Nasdaq had underperformed, gaining only 0.3%.
