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How speculative tech stocks lost one-third of their value in the past month

If Oracle has credit risk now, some of that risk should also probably be reflected in the share prices of more speculative, volatile tech stocks.

Luke Kawa

Speculative stocks tied to the AI boom, quantum computing, and energy have tanked over the past month.

Among Oklo, D-Wave Quantum, CoreWeave, IonQ, Nebius, Cipher Mining, IREN, Rigetti Computing, Tempus AI, POET Technologies, Bloom Energy, Plug Power, and SoundHound AI, the average member has lost a third of its value since mid-October.

That’s a sharp pullback for a group of stocks that could seemingly do no wrong, with the average constituent nearly having tripled from the start of July through October 14.

Why and how did this happen?

A few overarching thoughts here:

First, the peak in speculative stocks came right around the time earnings season kicked off, a time when everyone takes out their pencils, dusts off their finest monocles, and casts a sharp eye on corporate fundamentals.

Per FactSet’s John Butters, 82% of S&P 500 companies reported a positive bottom-line beat and 77% reported a better-than-expected sales surprise in Q3.

One might reasonably think, “Why am I continuing to invest more in companies that have a cursory to nonexistent relationship with profitability when there are oodles and oodles of bigger firms whose operations are doing quite well?” To this point, I’ll add that the iShares MSCI USA Value Factor ETF is up about 6% since the average speculative stock peaked, well outperforming the S&P 500 over this period.

Secondly, a quantum-specific risk factor: bulls got rugged. Stars had seemingly been aligning toward more government support for the nascent industry, culminating in rumors about the Treasury Department taking stakes in leading pure-play firms, only for those reports to be contradicted and then disappear without a trace.

Third and most importantly: AI has credit risk now.

Oracle has now erased more than all the gains it made after reporting a massive pipeline of future demand, which was later revealed to be largely thanks to OpenAI.

Not only have shares tumbled, but credit default swap spreads have widened; that is, investors no longer think it’s as safe a bet to make good on its own debts. I suppose that’s what happens when you’re poised to go on a multiyear capital expenditure binge to build out physical infrastructure to meet orders from a customer that is currently incinerating cash and has more multibillion-dollar spending commitments than a consortium of octopuses has tentacles.

It’s a delicate dance: megacap tech companies are trying to use their good names (and their good money) to support the overall growth of the AI ecosystem, without exposing themselves to too much risk. For instance, Bloomberg’s Gowri Gurumurthy writes that investors are demanding a higher coupon for Applied Digital’s bond offering than similar offerings by Terawulf and Cipher because those companies are being backstopped by Alphabet, while Applied Digital is relying on CoreWeave as its key tenant.

When the question of, “Oracle will be able to pay me back, right?” enters your mind, that’s probably not consistent with a world in which smaller companies on the outskirts of the AI ecosystem, and other thematic plays within tech, can continuously be bid up to the moon.

In other words, if something might go wrong for an established megacap tech company, the market might shy away from pricing smaller players as if everything is bound to work out perfectly.

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Sandisk, memory chip stocks slump after Japanese competitor reports weak numbers

High-flying shares of tech hardware firms like Sandisk, Seagate Technology Holdings, and Western Digital — which make products to deal with the deluge of information and data expected to be produced by the AI database build-out — dropped Thursday after a Japanese competitor, Kioxia Holdings, reported a lackluster set of quarterly numbers.

These stocks are also suffering as part of a general drawdown in AI data center and data center-adjacent stocks Thursday amid a flurry of stories on the sector, all of which have, at their heart, the growing sense of the lack of transparency and uncertainty about supply, demand, available resources, costs, and short-term losses swirling around the boom.

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We already knew Disney had a hit with its live-action “Lilo & Stitch” earlier this year — the film earned more than 10x its reported budget at the global box office. But for Disney, it also massively fueled merch sales.

“Retail sales for Stitch from our Consumer Products business also continues to grow, eclipsing $4 billion in fiscal 2025,” Disney CEO Bob Iger said. That’s up more than 50% from a reported $2.6 billion in Stitch merch sales in fiscal 2024.

To put that $4 billion sales figure in context, Harley Davidson sold about the same amount in motorcycles, parts and accessories, and apparel combined last year. The amount Disney made on Stitch toys, blankets, and clothes is roughly equal to the market cap of Shake Shack. Not too shabby for a 23-year-old piece of intellectual property.

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Flutter dives on guidance cut, flurry of analyst price target cuts

Flutter Entertainment, the parent of top US online sports betting app FanDuel, tumbled in early trading after it cut revenue guidance as part of a disappointing earnings report issued yesterday after the close.

The company also surprised some on Wall Street with the amount it plans to spend — $45 million in Q4 and between $200 million and $300 million next year — on its own prediction markets push, as the sports betting business attempts to fend off emerging competitive pressure.

Bank of America analysts, who recently downgraded their rating of the stock to “neutral,” said such spending “is materially higher than our and investor expectation. Strategically, we think this step-up investment could be warranted given the total addressable market, but also confirms we are entering an investment phase” for the industry that may be “a tough period for [online sports betting] operator profitability.”

According to FactSet data, 14 analysts have trimmed their Flutter price targets since the report was released, taking the consensus 12- to 18-month bogey for the stock from over $330 to less than $320, which is still a more than 50% premium to the market — and widening by the minute.