Stocks fall as AI enthusiasm wavers

Lucid delivered 4,078 vehicles in its third quarter, the seventh straight quarterly delivery record for the luxury EV maker. But despite that year-over-year growth, the figure came in below Wall Street’s estimates by about 18% in a quarter where EV makers (including luxury competitors like Rivian) sold thousands of vehicles leading up to the expiration of the US federal EV tax credit.

Lucid shares fell more than 8% in Tuesday trading. Also likely making investors skittish was a freshly lowered Lucid rating by CFRA from “sell” to “strong sell.”

CFRA analyst Garrett Nelson wrote that the rating drop “reflects concerns regarding LCID’s cash burn rate, weak demand, pricing pressures, EV competition, and the fact it is nowhere near close to achieving the mass production rates needed to meaningfully drive down unit costs.” CFRA’s price target for Lucid is $10, 55% below the stock’s current price.

Nelson argues customer demand is a major issue for Lucid, which hasn’t updated its full-year production guidance of 18,000 to 20,000 vehicles since its earnings report in August. To achieve the low end of that range, Lucid will need to build more than 8,000 vehicles in its fourth quarter, which would reflect Q4 production growth of 137% year over year.

You buy Nvidia’s flagship chips because they’re supposed to be best in class, empowering you to build better AI capabilities or make lots of money off other companies that want to harness the power of the AI boom.

Not quite, per this report from The Information, whose final paragraph begins with this line:

“In the three months that ended in August, Oracle lost nearly $100 million from rentals of Nvidia’s Blackwell chips, which arrived this year.”

The report notes that some of this is a timing issue, a gap between getting data centers equipped for use and when customers start paying for services.

Oracle, which was roughly flat, quickly fell more than 5% as traders digested this report. Shares of Nvidia, which were up nearly 2% at their highs of the day, turned negative.

Citing internal documents, The Information says that Oracle’s “fast-growing cloud business has had razor-thin gross profit margins in the past year or so,” booking a gross profit of $125 million on rentals of servers that utilize Nvidia chips for the three months ending in August, for a gross margin of just under 14%.

The damage in markets is far from localized in those two stocks, however. In a reversal of how OpenAI’s deal with AMD buoyed the AI trade on Monday, this news is sparking a broad-based retreat.

Nvidia’s top AI chip rival, Broadcom, went from flat to down 2%, with memory chip specialist Micron and foundry giant TSMC also well in the red. Neocloud companies Nebius and CoreWeave, disk drive sellers Western Digital and Seagate Technology Holdings, and zero-revenue nuclear energy firm Okloare among the other stocks selling off on the news.

Over the past 24 hours, Wall Street has been scrambling to revise its view on how high shares of Advanced Micro Devices can climb in the wake of its recently announced megadeal with OpenAI.

While the terms of the arrangement may raise some eyebrows, Wall Street is expecting that OpenAI’s big foray into AMD’s AI chips will serve as a validation point and magnet for other potential buyers.

“OpenAI is arguably the most disruptive of GenAI cloud computing customers, and its success is likely to act as a force multiplier for other cloud vendors and LLM providers to accelerate their capex, positive for multiple chip, memory, optical, networking, and foundry suppliers,” wrote Bank of America analyst Vivek Arya, who estimates the agreement could be worth over $100 billion over the next four to six years.

As of publishing, we’ve tallied up 22 cases where the sell side has hiked its price target on the chip designer since news of the deal broke:

AppLovin got thwacked late in the session on Monday following a report by Bloomberg that the SEC is investigating the ad tech company’s data collection practices.

Shares are paring some of that decline on Tuesday, up about 3% in early trading. Citi analyst Jason Bazinet calls yesterday's late tumble “a bit extreme,” as he estimates it’s equivalent to pricing in a $680 million hit to revenues.

“We would be buyers on any weakness,” he wrote.

Bazinet, who has a “buy” rating and $850 price target on AppLovin — the highest among all analysts polled by Bloomberg — suggested the company’s response to the report implies it may not be that serious of an issue, in management’s eyes. AppLovin told Bloomberg that it would disclose material developments through appropriate public channels.

“We view the lack of an 8K filing as a positive in that the firm does not view this probe as a ‘material’ risk,” he wrote. “In addition, we would suspect Apple and Google would properly monitor their respective platforms and enforce any potential violations.”