The S&P 500 slipped on Thursday after coming within reach of fresh record territory, as a steep sell-off in Oracle triggered a broader pullback in high‑flying artificial intelligence stocks and cooled Wall Street’s post‑Federal Reserve rally. While the Dow Jones Industrial Average pushed to new highs, the more tech‑heavy benchmarks fell, underscoring mounting investor unease over whether surging AI-related spending can translate into sustainable profits.
U.S. stocks moved sharply in different directions a day after the Federal Reserve delivered its third interest‑rate cut of 2025, trimming the federal funds target range to 3.50%–3.75% and signaling policy had moved into what officials describe as a more “neutral” zone. The Dow jumped around 1% and set a new intraday record, helped by gains in financial and economically sensitive shares, even as the S&P 500 and Nasdaq Composite pulled back from Wednesday’s highs. According to multiple market data providers, the S&P 500 slipped roughly 0.3% while the Nasdaq fell about 1% in morning trading as investors dumped big tech and AI leaders.
The pullback came less than 24 hours after the S&P 500 had pushed to within a few points of its all‑time closing high and the Dow closed at a record above 48,700, buoyed by optimism that lower borrowing costs could extend the bull market despite lingering inflation concerns. The Fed’s more dovish‑than‑feared tone had initially sparked a powerful rotation into risk assets, particularly economically sensitive stocks and small‑caps.
The catalyst for Thursday’s reversal was Oracle, whose shares plunged between 11% and 16% at various points in the session after the software and cloud giant reported quarterly results that underwhelmed investors and sharply raised its artificial‑intelligence infrastructure spending plans. The stock’s one‑day drop erased roughly $70–$80 billion in market value and marked its steepest decline in years, according to market data compiled by Reuters and The Guardian.
Oracle said revenue for the quarter rose about 14% year‑over‑year to roughly $16 billion, falling short of Wall Street’s expectations. More troubling for investors, the company forecast that annual capital expenditures would run about $15 billion above prior plans, pushing total AI‑driven data‑center spending toward the $50 billion mark over the coming years. The increased capex plan, funded in part with fresh debt issuance that has already lifted Oracle’s long‑term obligations by around 25% to just under $100 billion, intensified concerns that AI infrastructure outlays are running ahead of proven demand. Credit‑default swap costs tied to Oracle debt also jumped, a sign that bond investors are demanding more protection against the risk that aggressive AI bets may not pay off quickly.
Oracle’s stumble reverberated across the broader AI trade, dragging down a cluster of companies seen as prime beneficiaries of the boom in generative AI and data‑center spending. Major chip designers and cloud providers lost ground as traders reassessed how quickly eye‑popping AI investments can translate into cash flows.
Nvidia, Advanced Micro Devices and Arm Holdings all declined by around 2%–3% in early trading, while software names with prominent AI strategies such as Alphabet and Palantir also weakened. The Philadelphia Semiconductor Index, a widely watched gauge of chip stocks that has been at the heart of the AI rally, slipped close to 1% on the day.
While Oracle and other AI‑centric names weighed on the Nasdaq and S&P 500, other corners of the market benefited from the same macro backdrop that had fueled the recent rally: lower interest‑rate expectations and hopes for a soft landing.
Financial stocks and value‑oriented shares outperformed, with the S&P 500 financials sector up nearly 2% and materials gaining more than 2%, even as growth‑oriented tech and communication‑services names fell. The small‑cap Russell 2000 index, which had lagged much of the year, climbed around 1% as investors rotated into domestically focused companies that stand to gain from steadier growth and falling borrowing costs.
The Dow’s surge to a record, even as the Nasdaq slid, highlighted the changing leadership beneath the surface of the market. Banks, payment networks and industrial leaders helped offset weakness in megacap tech. For some strategists, that tilt toward cyclicals and value suggests the rally is broadening beyond a handful of AI champions, a dynamic that can sometimes make bull markets more durable.
The renewed volatility in tech comes as investors continue to digest a shifting macroeconomic picture. The Fed’s latest policy move — a widely expected 25‑basis‑point cut — was accompanied by projections that still imply gradual easing in 2026 rather than an aggressive rate‑cut cycle, a stance officials argue is consistent with moderating but still elevated inflation.
On the data front, weekly jobless claims rose to roughly 236,000 in early December, above economist forecasts around 220,000 and hinting at a modest cooling in the labor market. At the same time, the yield on the 10‑year U.S. Treasury note was little changed near 4.1%–4.2%, reflecting a delicate balance between expectations for easier policy and concern that inflation could prove sticky.
The S&P 500’s retreat after briefly flirting with record highs does not yet mark a decisive turn in the market’s uptrend, but it does illustrate how dependent recent gains have been on enthusiasm for AI. With Oracle’s stumble, investors were forced to confront the possibility that the pace and profitability of the AI build‑out may be less linear than many bullish narratives suggest.
Market historians note that in past episodes — from the dot‑com era to the more recent cryptocurrency booms — heavy capital spending and rapid multiple expansion in a hot theme often preceded sharp corrections when earnings failed to keep pace. Officials and analysts are increasingly warning that today’s AI build‑out could invite similar boom‑and‑bust dynamics if expectations stay untethered from fundamentals.
For now, Wall Street’s message is mixed. On one hand, record highs for the Dow and recent peaks for the S&P 500 reflect confidence that the Fed can orchestrate slower inflation without tipping the economy into recession. On the other, the sharp reaction to a single AI‑linked earnings miss shows just how sensitive the market has become to any sign that the narrative of limitless AI growth may be overextended.
The S&P 500’s fall after nearing record levels, driven largely by Oracle’s disappointing results and an AI‑centric tech sell‑off, marks an important test of investor conviction in the year’s most powerful theme. While broader market strength and sector rotation suggest that the bull market has legs beyond AI, the episode exposed how concentrated and fragile sentiment can be around a small group of high‑growth names.
As earnings season grinds on and more companies detail their own AI strategies and spending plans, investors will be watching closely for confirmation that massive capital expenditures are being matched by durable demand. Whether Thursday’s slide proves a healthy pause or the start of a more serious reckoning for AI valuations may determine if the S&P 500 can sustain new highs — or if Oracle’s shock is an early warning that expectations have raced too far ahead of reality.
You've reached the juicy part of the story.
Sign in with Google to unlock the rest — it takes 2 seconds, and we promise no spoilers in your inbox.
Free forever. No credit card. Just great reading.