Oracle stock tumbled Friday, joining a broad AI stocks pullback. Shares of the database software giant dropped below its 50-day moving average. after hovering just above the key level for several days.
On the stock market today, Oracle stock is down more than 6% at 225.12 in afternoon trades. While there is no clear catalyst for Oracle stock directly, stocks that have gotten a boost from optimism about generative AI were largely trading lower Friday.
The decline is driven in part by a so-so week for chipmakers, who have been the top early beneficiaries of AI enthusiasm. Top AI stock Nvidia is set to close the week lower after the chipmaker reported earnings late Wednesday. Chipmaker Marvell Technology disappointed investors with its sales forecast late Thursday. A reported move from Alibaba Group to produce its own AI chip in China is also weighing on AI stocks in the U.S.
Oracle is investing billions to build data centers filled with systems, filled with advanced AI chips, that it will rent to companies, such as OpenAI, through its Oracle Cloud Infrastructure business. So investors are sensitive to any indications about enterprise demand for AI.
It is a down day overall for shares of companies that provide enterprise data software tools. Data software company Elastic is down slightly in Friday trading despite initially rallying more than 20% following a strong fiscal Q1 earnings report Thursday night. Shares of MongoDB — a challenger to Oracle in enterprise database software — are also pulling back Friday following a rally earlier this week.
Oracle Stock Rally To Face Earnings Test
With Friday marking the final trading day of August, Oracle stock appears set to close the month about 12% lower. The month brought a pullback from a huge rally that had Oracle stock gain 81.5% from April through July.
Oracle rallied largely because of optimism about AI boosting its cloud infrastructure business, OCI. OCI is a fast-growing challenger to the larger businesses of Amazon and Microsoft that rent cloud computing services to enterprises. Oracle got a significant boost last month when it announced it will develop 4.5 gigawatts of data center capacity for ChatGPT creator OpenAI.
Even with a rough August, Oracle stock remains ahead by about 35% from the start of the year.
Oracle's gains will be tested early next month. The tech giant is expected to report fiscal first quarter results. Oracle's quarter ends with August. The company hasn't yet announced a date the results will publish.
UBS analyst Karl Keirstead reiterated a buy rating for Oracle stock in a note to clients Friday. But he acknowledged there is a lot of debate among investors about Oracle stock.
"The bear case on Oracle shares remains rooted in concerns about margin erosion, OpenAI customer concentration and the likelihood of negative cash flow over the next few years," Keirstead wrote. "We share these concerns but conclude they'll be trumped by the revenue growth acceleration and operating income dollar growth."
