The S&P 500 closed 1.16% lower yesterday, marking four straight losing sessions for the index, which is now down 2.6% from the all-time high reached on December 11. The decline was led, as usual, by technology stocks. Oracle was down 5.4% and its AI data center rival CoreWeave lost more than 7%.
Two things hit the tech sector:
First, “Big Short” investor Michael Burry published a chart of Wells Fargo on X showing that stocks now make up a larger share of U.S. household wealth than real estate. This has only happened twice in history, once in the 1960s and a second time just before the Internet crash of 2000. “The last two times, the ensuing bear market lasted for years,” Burry said.
“The reasons for this are numerous, but certainly include the gamification of stock trading, the country’s gambling problem due to its own gamification, and a new paradigm of ‘AI’ backed by trillions. [of dollars] of planned capital investments underway, supported by our wealthiest businesses and the political establishment. What could go wrong? » Burry argued.
Of course, Burry has a conflict of interest in the form of a $1.1 billion short bet against AI stocks Palantir and Nvidia. So take his catastrophic comments with a pinch of salt.
Second, Oracle failed to close a $10 billion debt financing deal from Blue Owl Capital for a new AI data center in Michigan, according to the Financial Times. The company admitted it would not partner with Blue Owl, but told the FT it was continuing with its plan on schedule.
Wall Street is becoming less and less impressed by Oracle’s debt. “With over $100 billion in debt outstanding, investors continue to be more concerned about the company’s borrowing to fund its AI ambitions,” Bespoke Investment Group told clients in an email this morning.
Jim Reid and his colleagues at Deutsche Bank noted that the spread on Oracle’s credit default swaps (the yield premium that investors demand for the risk of buying them), which was already significantly wider than that of comparable companies, had become even wider.
“This FT report… increased concerns about a potential AI bubble and sent Oracle’s five-year credit default swaps soaring to 156 basis points, their highest level since the GFC. [Great Financial Crisis]”, they said. “So technology stocks led yesterday’s declines, with the [Magnificent Seven tech stocks] (-2.12%) is having its worst day in over a month, led by a -3.81% drop for Nvidia.
The net new supply of AI-related debt from all tech companies doubled this year to $200 billion, according to a Goldman Sachs study, and now accounts for 30% of all corporate debt issuance.
KKR yesterday released its “outlook” for 2026 and was particularly skeptical about building AI data centers. In a section titled “Speculative Data Center Projects with Uncompetitive Cost Structures,” the private equity firm wrote: “We are seeing some excess exuberance in data centers…estimates point to nearly $7 trillion in global capital spending on data center infrastructure by 2030, an amount roughly equal to the combined GDP of Japan and Germany. As always, unit economics are key. Developers who focus on return on invested capital after electricity, capital and maintenance investment costs will do well, while those who focus on theoretical total addressable markets and lose sight of unit economics may suffer.
Economist Ed Yardeni told clients that “the Mag-7 could be in for a correction.”
“In recent weeks, investors have started to worry that these expenses are depleting Mag-7s’ cash flow and slowing earnings growth. Before AI, Mag-7s had plenty of cash because their labor and capital expenditures were relatively low. That changed once AI forced them to spend much more on both,” he said.
“We are not ruling out a Santa Claus gathering for the rest of the year. However, this is unlikely to happen if the S&P 500 continues to move away from the Magnificent-7 towards the Impressive-493, as we hope.”
The “Impressive-493” is a reference to all the other S&P 500 stocks outside of the Magnificent Seven that have performed quite well this year.
Here’s a look at the markets before the open in New York this morning:
- S&P 500 Futures Contracts were up 0.39% this morning. The last session closed down 1.16%.
- STOXX Europe 600 was up 0.21% at the start of the session.
- United Kingdom FTSE100 was up 0.29% at the start of the session.
- from Japan Nikkei 225 was down 1.03%.
- China CSI300 was down 0.59%.
- South Korea KOSPI was down 1.53%.
- India NIFTY50 was flat.
- Bitcoin was at $87,000.
