U.S. Stocks Hit New Highs as Investors Rotate Out of Tech Amid AI Uncertainty

Gerik

Summary:

The S&P 500 and Dow Jones closed at record highs as market participants shifted away from tech stocks following disappointing earnings and guidance from Oracle and Broadcom...

Stock Market Soars While Tech Sector Shows Cracks

U.S. equities rallied on Thursday, with the S&P 500 and Dow Jones Industrial Average reaching fresh record highs. The Russell 2000 also climbed to a new peak, signaling renewed optimism across small-cap stocks following the Federal Reserve’s decision to cut interest rates by 25 basis points on Wednesday. This rate adjustment is expected to support broader economic activity into year-end.

Yet, the Nasdaq Composite failed to join the rally, declining 0.26% due to weakness in high-profile tech names. Oracle led the losses, with shares tumbling nearly 11% after the company posted weak quarterly revenue and disclosed rising capital expenditures and lease obligations. This triggered broader skepticism around the AI growth narrative, dragging down other key players like Nvidia and Micron.

Broadcom Beats But Market Reacts to Strategic Uncertainty

Chipmaker Broadcom also reported fourth-quarter earnings and revenue that surpassed analyst estimates, along with confirmation that AI firm Anthropic is now a $10 billion customer. Despite strong financials and a doubling in net income from a year ago, Broadcom's stock dropped 4.5% in extended trading. Investors were unsettled by comments from CEO Hock Tan, who failed to ease concerns over Google’s potential pivot to in-house chip design and the uncertain terms of Broadcom’s AI-related contract with OpenAI.

Rising memory prices also surfaced as a margin threat for the company, compounding worries about profitability in the next fiscal year. These developments underline a growing trend where top-line growth in the AI space is being met with skepticism about sustainability and earnings leverage.

Sector Rotation Signals Broader Market Strength

While the tech sector faltered, investors poured into other industries. The S&P 500 financials sector, for instance, reached a new high, driven by strong performance in Visa and Mastercard. This reflects a healthy rotation into value and cyclical stocks, supported by the perception that the U.S. economy remains resilient under a lower rate regime.

The Fed’s dovish move has helped boost investor sentiment, providing momentum for risk-on positioning across various asset classes. Despite concerns about the AI sector, the broader market appears poised for a bullish end to the year assuming no major economic or geopolitical shocks intervene.

Corporate Headlines: Disney, Reddit, and Oracle

Disney announced a $1 billion investment in OpenAI and will license its iconic characters to Sora, OpenAI’s video generation platform. CEO Bob Iger framed the deal as a forward-looking play on content innovation, marking a major convergence between entertainment and generative AI.

Meanwhile, Reddit has launched a legal challenge against Australia’s recent social media ban for users under 16, arguing that the law infringes on freedom of political communication. The challenge could set a precedent for how digital rights are interpreted in age-restricted internet access laws.

Finally, Oracle’s future remains in question after its latest earnings report sparked a sell-off. Analysts are re-evaluating their price targets, citing concerns about its long-term AI strategy and high operational costs. The company’s recent investments have yet to translate into the kind of growth or clarity seen from AI peers like Microsoft or Nvidia.

Diverging Paths Define Year-End Market Narrative

The contrasting performances of traditional and tech stocks highlight an important inflection point. While AI and big tech have led markets for most of 2025, recent earnings disappointments are prompting a reassessment. Investors are increasingly seeking value in sectors with clearer profitability profiles as economic data stabilizes and monetary policy shifts to support.

With the Fed’s support now firmly in place and economic indicators showing resilience, market rotation rather than retreat appears to be the prevailing strategy heading into the holiday season. However, the future of AI-linked valuations and the ability of tech firms to meet elevated expectations will remain key themes into early 2026.

Source: CNBC

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