The speculative frenzy around themes like artificial intelligence, quantum computing, and new energy is rapidly cooling.
Since mid-October, speculative stocks—including nuclear energy firm Oklo, quantum computing companies IonQ and D-Wave Quantum, AI infrastructure provider CoreWeave, and energy tech firm Bloom Energy—have collectively lost about 33% of their market value.
The shift coincides with the start of the Q3 earnings season. As companies report actual financial results, investors are reassessing the lofty valuations of firms with little to no connection to profitability.
According to FactSet, a remarkable 82% of S&P 500 companies exceeded profit expectations, driving capital toward fundamentally strong value stocks.
More critically, even tech giants like Oracle face skepticism over their debt repayment capacity due to exposure to cash-burning clients—a signal that shattered the market’s "everything will be perfect" pricing fantasy for smaller players on the fringes of the AI ecosystem.
**The Sudden Halt of Speculative Mania**
A basket of 13 stocks—including Oklo, D-Wave Quantum, CoreWeave, IonQ, Nebius, Cipher Mining, IREN, Rigetti Computing, Tempus AI, POET Technologies, Bloom Energy, Plug Power, and SoundHound AI—has plunged by an average of one-third since October 14.
Earlier, these stocks had surged nearly 200% on average from early July to mid-October. But their peak aligned with the Q3 earnings season. FactSet’s John Butters noted that 82% of S&P 500 firms beat profit estimates, while 77% exceeded revenue expectations.
This stark contrast forced investors to rethink capital allocation. With solid large-cap companies delivering strong results, justifying bets on speculative names with weak profitability became untenable.
Market flows confirm this shift. Since speculative stocks peaked, the iShares MSCI USA Value Factor ETF (VLUE) has gained about 6%, far outpacing the S&P 500—a sign of rotation from high-risk, narrative-driven bets to fundamentally grounded value investing.
**AI Ecosystem’s Credit Crisis**
The pivotal turning point came as credit risks emerged in AI.
Oracle initially rallied after disclosing massive future demand, but when it revealed OpenAI as the primary source of those orders, its stock erased gains, and credit default swap spreads widened—reflecting doubts about its debt safety.
Oracle’s dilemma lies in needing multi-year capital expenditures to build infrastructure for a cash-burning client with billions in spending commitments. This exposure is now raising market concerns.
Risk repricing is growing more nuanced. Bloomberg reported that Applied Digital’s bond issuance demanded higher coupons than peers like Terawulf and Cipher Mining, as the latter enjoy Google’s backing while Applied Digital relies on CoreWeave as its key tenant.
When a company’s survival hinges on another high-risk startup, investors demand greater risk premiums.