Stocks declined on Wednesday as investors continued to rotate out of key artificial intelligence names, sparked by a report that Oracle's primary investor pulled out of one of its data center projects.
The S&P 500 fell 1.16% to 6,721.43, while the Nasdaq Composite lost 1.81% to end the session at 22,693.32. The Dow Jones Industrial Average slipped 228.29 points, or 0.47%, to settle at 47,885.97.
Once-hot AI stock Oracle dropped 5.4% after the Financial Times reported that Blue Owl Capital's plans to finance the cloud infrastructure company's $10 billion Michigan data center fell through, with people familiar with the matter pointing to concerns about Oracle's debt and spending levels. Oracle has since disputed the report and said the project is moving forward.
Risky financing schemes tied to companies' data center buildout plans have kept investors on edge in recent weeks. The spotlight on Oracle during the session comes after the company just last week refuted a Bloomberg report that said it had delayed some projects for OpenAI to 2028.
Other stocks tied to the AI trade fell in sympathy on Wednesday. Chipmaker Broadcom — another stock that has led the recent rotation out of tech — lost more than 4%. Nvidia lost nearly 4%, while Advanced Micro Devices lost more than 5%. Google parent Alphabet declined more than 3%.
"We definitely have seen a pretty clear rotation from large-cap growth into large-cap value, and what we're really seeing is, I think, people positioning themselves in a more defensive posture for what's going to happen next year," said Brian Mulberry, client portfolio manager at Zacks Investment Management. "The real question that's being asked is, 'Who is going to monetize these very large investments in AI?'"
Oracle and Broadcom, along with other names in the AI space, have raked in sizeable losses in December, a month that has seen investors move into value-oriented areas of the market such as financials. Month to date, Oracle and Broadcom have declined more than 11% and around 19%, respectively. The State Street Technology Select Sector SPDR ETF (XLK) is down 2.6% this month.
Mulberry expects that the rotation out of highly valued names and into "more fairly valued sectors" will persist into 2026. He believes this trend — along with uncertainty around monetary policy — could bring about some volatility.
"At this point, looking at certain subsets of factors to determine when and where that AI profitability moment will occur is going to be important, and that's going to be stuff like free cash flow. You can fake a balance sheet, but you can't fake free cash flow," he said. "The biggest driver of returns has now turned into the biggest risk to the market."
Wednesday marked the S&P 500's and 30-stock Dow's fourth negative day in a row.
The two benchmark indices suffered losses Tuesday after the U.S. Bureau of Labor Statistics released its November job report, which also included data from October. The findings pulled back the curtain on the U.S.' economic health following a federal data backup caused by the U.S. government shutdown this fall. Â
