Getting Hooked on AI

Oracle shares soar almost 40%... Is this really happening again?... Bait taken... What to do from here on out with AI... The latest on inflation... The case for rate cuts continues...

This is too similar to ignore...

Many have compared the track of the ongoing AI boom to the buildup of the dot-com bubble in the 1990s. Today, I (Corey McLaughlin) could only smack my forehead at the latest example...

Shares of Oracle (ORCL) soared 36% today, for the tech company's best single-day performance since 1992 and by far its best day since the dot-com boom.

What happened last time? Oracle eclipsed a $750 billion market cap in 2000 at the height of the dot-com bubble, then saw shares lose nearly 60% in a year. Its market cap never touched that mark again until... well... today.

This time, rather than pinning its hopes and dreams to the prospect of the Internet, it's AI... Oracle promises new revenue growth from its cloud-infrastructure business and data centers related to the buildout of AI over the next few years.

Oracle reported earnings yesterday and, while its quarterly numbers missed Wall Street expectations, analysts ignored that fact and paid attention to a big upgrade in the company's forward guidance, and the market assigned $244 billion of new value to Oracle today. Here's part of CNBC's recap...

John DiFucci from Guggenheim Securities said he was "blown away." TD Cowen's Derrick Wood called it a "momentous quarter." And Brad Zelnick of Deutsche Bank said, "We're all kind of in shock, in a very good way."

That's how the analysts opened their comments and questions during Oracle's quarterly earnings call on Tuesday, as the company's stock price was in the midst of a 28% after-hours rally...

The excitement is mostly around cloud infrastructure, where Oracle competes with Amazon, Microsoft and Google. Oracle said that revenue this fiscal year in that business will jump 77% to $18 billion from $10 billion in the last year.

In fiscal 2027, the figure will almost double to $32 billion, before reaching $73 billion, $114 billion and $144 billion in the subsequent three years.

Heading into this earnings call, I heard at least one Wall Street analyst say he was simply looking for a report confirming consistent revenue growth from the company. That didn't happen, but management is promising it... Bait taken...

To cite the familiar saying: "History doesn't repeat, but it often rhymes."

This is rhyming, if not repeating...

This massive move in Oracle shares may even be rooted in some reality. This company does make money, and it could very well make more thanks to the AI buildout. But it's also counting on very high expectations for years down the road that may or may not be met.

On one hand, the company said it signed four new multibillion-dollar contracts with three customers in the most recent quarter, at least one of which is to develop 4.5 gigawatts of U.S. data-center capacity for ChatGPT maker OpenAI.

On the other hand, Oracle's backlog of contracts grew to $455 billion. That's up 360% from a year earlier and up $317 billion since the end of the previous quarter.

To Wall Street, it's like this money is already in Oracle's pockets. In some cases, like for government contractors, backlog can work that way. But AI is more speculative... And if customers start pulling out of these contracts, some investors are going to be stunned.

Or perhaps AI is growing even more than everyone already thinks, all promises will be fulfilled, and it will all work out just fine.

The market may have forgotten about Oracle's history... but AI hasn't. Here's what Google Gemini told me about it today...

During the dot-com run-up of the late 1990s, Oracle had massive expectations due to its dominance in enterprise database software, which was considered essential infrastructure for the burgeoning internet economy. However, these projections proved unsustainable when the bubble burst, causing Oracle's stock to collapse and take years to recover.

Keep this in mind...

I'm not saying AI isn't valuable. It's a groundbreaking, promising technology still early in development that will likely touch every industry, and no one can entirely predict its path forward.

But the same was said about the Internet in the 1990s. And the buzz about that nascent tech three decades ago fueled a stock market bubble... followed by a painful bust. Only afterward did long-term winners like Amazon become distinct from bubble names like Pets.com.

I'm also not saying Oracle is like Pets.com. But the Oracle of today could be, once again, the overhyped and overvalued Oracle of a quarter-century ago.

If anything, take today's move as a possible signal about where we could be in the AI adoption/hype cycle.

That said, the AI fervor could go on for a while or longer than you might think. Folks will make money in this space, including from long-term winners that aren't household names yet, or might not be for years.

Just today, Dan Ferris and I recorded an upcoming Stansberry Investor Hour podcast with Marc Chaikin, founder of our corporate affiliate Chaikin Analytics.

Last year, Marc was saying that – if you're following the Internet/AI analog – we were in 1996. Today, he says there's a "mini bubble in the making," but it's still more like 1997. That means if he's right, we have a few more years before things turn south.

Right now, the current AI-bolstered bull market doesn't seem to be at full dot-com-mania levels. But this market reaction to Oracle's quarterly earnings might be a start.

From here on out, make sure to separate the wheat from the chaff when it comes to AI... and stay tuned for the influence on the overall market, too. Today, for example, the tech, utilities, and energy sectors (all data-center related) of the S&P 500 Index were up nearly 2% each and lifted what was otherwise a relatively weak day for stocks.

While the U.S. benchmark finished up 0.3%, about 300 of the S&P 500 stocks finished down, and the equal-weight version of the index was down slightly.

Moving on, what a difference a month makes (for inflation)...

This morning, the Bureau of Labor Statistics' producer price index ("PPI") release showed that prices fell 0.1% month over month in August. That was well below Wall Street's expectation for a 0.3% month-over-month increase.

Also, PPI rose 2.6% over the past 12 months, versus the estimate of a 3.3% increase. That's a huge miss. And it's the "cool" inflation data that the market is looking for... since it helps the Federal Reserve's case to lower interest rates.

It's also a big reversal from the previous month's data...

Last month, PPI came in much hotter than expected – at a 0.9% monthly increase versus the estimate for a 0.2% rise. As we wrote in the August 14 Digest...

This was the biggest "miss" for Wall Street's PPI expectations since February 2021 – when the index came in at 1.2% month over month versus the 0.4% estimate, according to Bespoke Invest.

That ended up being the first month of the notorious inflation spike that ran throughout 2021 and 2022.

Today's release was the exact opposite, even if the month-over-month "miss" from expectations wasn't as large. That's what investors focused on the elixir of rate cuts wanted to see.

Looking ahead to tomorrow...

Investors get another inflation release tomorrow, with consumer price index ("CPI") data for August. Markets look to this for a read on consumer inflation, while PPI measures what businesses are paying.

According to the Cleveland Federal Reserve's Inflation Nowcast, the August CPI increase should come in around 2.8% year over year, with Core CPI (which excludes volatile food and energy prices) expected to rise 3.1%.

This week's CPI and PPI data are the last inflation numbers we're going to get before the Fed's policy meeting next week. At this point, absent a huge surge in inflation in tomorrow's CPI report, the Fed will almost certainly cut its benchmark lending rate.

Markets are pricing in a 100% chance of a rate cut next week, including a 10% chance that the Fed "goes big" and cuts rates by 50 basis points rather than the likelier 25 basis points.

As we highlighted from Ten Stock Trader editor Greg Diamond yesterday, cutting rates with inflation still around 3% could put the Fed in a "tough spot" down the road.

But as Mike Barrett told his Select Value Opportunities subscribers this morning, the Fed "has aggressively cut rates when unemployment has risen sharply, regardless of inflation."

That's exactly what we're seeing right now. The Fed wants to support the job market, and it's going to do so as long as inflation doesn't get too out of hand.

That supports the case for owning "hard assets" like gold and silver to protect your wealth, while shares of high-quality businesses can help grow your portfolio whether interest rates are low or inflation is high.

New 52-week highs (as of 9/9/25): AutoZone (AZO), Barrick Mining (B), iShares MSCI BIC Fund (BKF), Alpha Architect 1-3 Month Box Fund (BOXX), Ciena (CIEN), iShares MSCI Emerging Markets ex China Fund (EMXC), Equinox Gold (EQX), Alphabet (GOOGL), iShares Convertible Bond Fund (ICVT), KraneShares CSI China Internet Fund (KWEB), Lumentum (LITE), Lynas Rare Earths (LYSDY), Neuberger Berman Next Generation Connectivity Fund (NBXG), Annaly Capital Management (NLY), O'Reilly Automotive (ORLY), Roivant Sciences (ROIV), Uranium Energy (UEC), Valero Energy (VLO), Vanguard S&P 500 Fund (VOO), and ProShares Ultra FTSE China 50 (XPP).

A sleepy mailbag today... What's on your mind? As always, send your comments and questions to feedback@stansberryresearch.com.

All the best,

Corey McLaughlin and Nick Koziol
Baltimore, Maryland
September 10, 2025