Technology stocks led by Oracle extend gains after inflation data surprises to downside – Crypto News – Crypto News
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Technology stocks led by Oracle extend gains after inflation data surprises to downside – Crypto News

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  • May CPI inflation arrives lower than expected and below April showing.
  • Despite reduced dot plot guidance for interest rate cuts, NASDAQ soars.
  • Oracle stock surged 13% on bookings guidance for cloud business.
  • Apple overtakes Microsoft market cap on strength of AI.

 

Tech stocks surged on Wednesday as a prominent inflation report in the US led the market to increase the odds that the Federal Reserve (Fed) will cut rates in September. US inflation looks to have returned to its downtrend, which should benefit all stocks but especially growth stocks.

Oracle (ORCL) earnings sent the legacy tech stock up 13%, unusual for a rather staid brand. The market completely ignored Oracle missing Wall Street projections for the most recent quarter and focused instead on impressive guidance in its cloud business.

The NASDAQ surged 1.8% in the late afternoon as Apple (AAPL) and Nvidia (NVDA) continue the week’s expansion. Apple is once again the most valuable company in the world with a $3.37 trillion valuation, surpassing Microsoft’s (MSFT) $3.27 trillion market cap after introducing its Apple Intelligence AI feature earlier this week. Nvidia is a close third at $3.11 trillion.

Tech stocks soar as inflation lessens, Fed alters dot plot

The US Bureau of Labor Statistics released its Consumer Price Index (CPI) data for May before the market opened on Wednesday, and it beat expectations across the board by coming in below consensus. This is a good sign that the Fed should have the wiggle room to cut interest rates sooner rather than later. 

Monthly headline inflation came in flat for May, whereas the prior month had seen 0.3% growth. What’s more, annual core inflation dropped from 3.6% a month prior to 3.4% YoY in May.

The odds that the central bank cuts interest rates in September improved from 53% on Tuesday to nearly 64% on Wednesday, based on the CME Group’s FedWatch Tool. It was even higher than that before Fed Chair Jerome Powell began his press conference following the central bank’s decision to hold rates flat in their 5.25% to 5.50% range.

No one in the equity market seems to have noticed that the Fed’s new dot plot predicts that the calendar would end this year with two fewer cuts. Previously, the Fed governor consensus called for interest rates to end the year at 4.6%. Now that has been trimmed to 5.1% or two fewer cuts. But the market has been softening expectations for months, so an official change in outlook did little damage.

This could be the second session in a row that Apple gains more than 6%, which is really eye-popping considering that it’s long been one of the largest stocks in the market. The rally began on Tuesday after the market began to digest Apple’s Apple Intelligence platform that will be integrated with its iPads and iPhones, as well as with Siri. Rumors persist that Apple itself fomented the rally via a surge in share repurchases.

Oracle missed the Wall Street consensus on both top and bottom lines but its 42% YoY gain in Cloud Infrastructure revenue excited a certain demographic. Shares have risen more than 13% despite selling off before the earnings release.

Oracle Cloud Infrastructure signed 30 large customers to bookings in excess of $12.5 billion, a figure that surprised many observers. What’s more, Alphabet (GOOGL), Microsoft and OpenAI were among those customers.

AI stocks FAQs

First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.

There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.

Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.

Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.

Oracle stock chart

ORCL daily stock chart

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