AI debt hits #Oracle and indices
In posts from October 8 the vulnerability of the AI arms race was considered: building data centers requires huge investments, and high interest rates increase the cost of borrowing. At that time, FreshForex analysts expected increased pressure on #NQ100 and #SP500. The latest sell-off supported this scenario.
During the session on October 14, #Oracle lost about 9%, and the technology sector came under fire after US inflation statistics. At the time of preparing the material #Oracle is around $130.20, #NQ100 — 29,637.7 points, #SP500 — 7,702.5 points.
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Why pressure may persist
US inflation reached 3.7% year-on-year, exceeding the forecast of 3.6%. This intensified fears of a new Fed rate hike. For companies that finance AI infrastructure expansion through borrowing, such a turn means the risk of additional expenses even before investments begin to generate sufficient profit.
Projects with long payback periods are particularly sensitive to interest rates. Expenses for equipment and construction arise now, while revenue from new capacities comes later. If the cost of borrowing rises, companies have to allocate more funds to interest payments. This can limit free cash flow and reduce stock attractiveness.
Tension is also evident in the debt market. The cost of five-year credit default swap protection for #Oracle rose to a record 288 basis points. Creditors demand more for taking on risk, and equity investors more carefully assess the company's future cash flows. This increases pressure on businesses that need to continue large-scale investments.
#Dell also came under pressure
The sale also affected AI equipment manufacturers. As of October 14 #Dell lost 11.4%. An additional blow was the downgrade by Barclays: after a rapid rise in shares, analysts doubted that corporate spending on AI would provide sufficient business acceleration to justify high valuations.
Now #Dell is around $506.70. According to FreshForex analysts, after such a sharp drop, a rebound is possible, but a sustainable recovery is still in question. For now, quotes remain below $520, there remains a risk of testing $500 with further decline to $490.
The decline is not yet over
According to FreshForex analysts, pressure on #Oracle, #NQ100, and #SP500 will persist in the upcoming trading sessions. Expensive borrowing remains a problem for the AI sector, so rebounds after the sell-off currently look like a temporary respite.
The target indicated in the previous article 7,700–7,750 for #SP500 has been reached. Now a test of 7 650, and then — 7 600. For #NQ100, a return to 29 550 with a possible continuation of the decline to 29 400. For #Oracle, the nearest milestone is— $129,20: its breakout will pave the way to $120–123. For #Dell, maintaining quotes below $520 maintains the scenario of decline to $500, and then — $490.
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