What Happened?
A number of stocks fell in the afternoon session after reports revealed tech giant Oracle is generating lower-than-expected margins in its cloud business and losing money on Nvidia chip rentals.
The news caused Oracle's shares to tumble over 5% and sparked a wider tech sell-off, pulling the S&P 500 and Nasdaq down. Investors are growing concerned about the actual strength and profitability of artificial intelligence demand, which has been a primary driver of the market's recent record-breaking run. Oracle's struggles suggest that the massive capital investments required for AI, such as acquiring expensive chips, may not be translating into immediate or guaranteed profits. This has led to broader anxiety that the AI boom's financial returns might be less certain than previously anticipated, causing traders to pull back from the sector.
Compounding these worries was the ongoing U.S. government shutdown, in its second week, with no clear resolution in sight from Washington. This political uncertainty drove investors away from riskier assets and towards safe havens, a trend highlighted by gold hitting a record $4,000 per ounce for the first time.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Semiconductor Manufacturing company Lam Research (NASDAQ: LRCX) fell 4.1%. Is now the time to buy Lam Research? Access our full analysis report here, it’s free for active Edge members.
- Memory Semiconductors company Western Digital (NASDAQ: WDC) fell 4.4%. Is now the time to buy Western Digital? Access our full analysis report here, it’s free for active Edge members.
- Semiconductor Manufacturing company Photronics (NASDAQ: PLAB) fell 4.8%. Is now the time to buy Photronics? Access our full analysis report here, it’s free for active Edge members.
- Semiconductor Manufacturing company Nova (NASDAQ: NVMI) fell 4.5%. Is now the time to buy Nova? Access our full analysis report here, it’s free for active Edge members.
- Semiconductor Manufacturing company FormFactor (NASDAQ: FORM) fell 8.6%. Is now the time to buy FormFactor? Access our full analysis report here, it’s free for active Edge members.
Zooming In On FormFactor (FORM)
FormFactor’s shares are very volatile and have had 29 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 1 day ago when the stock gained 6.5% on the news that a major AI-focused partnership in the chip sector boosted sentiment for stocks with exposure to the AI market. The positive momentum was linked to an announcement that AMD and OpenAI entered into an agreement to power OpenAI's AI infrastructure with AMD's Instinct GPUs. This significant deal underscored the massive demand for advanced chips needed for artificial intelligence applications. The development occurred as the U.S. semiconductor manufacturing industry was already experiencing rapid growth, fueled by AI-driven demand and government support from initiatives like the CHIPS and Science Act.
FormFactor is down 13.1% since the beginning of the year, and at $38.44 per share, it is trading 21.1% below its 52-week high of $48.72 from October 2024. Investors who bought $1,000 worth of FormFactor’s shares 5 years ago would now be looking at an investment worth $1,451.
Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading close to all-time highs, we prefer a lesser-known (but still profitable) semiconductor stock benefiting from the rise of AI. Click here to access our free report on our favorite semiconductor growth story.
