How speculative tech stocks lost one-third of their value in the past month

Speculative stocks tied to the AI boom, quantum computing, and energy have tanked over the past month and got massacred yesterday. Among Oklo, D-Wave Quantum, CoreWeave, IonQ, Nebius, Cipher Mining, IREN, Rigetti Computing, Tempus AI, POET Technologies, Bloom Energy, Plug Power, and SoundHound AI, the average member has lost a third of its value since mid-October.

That’s a sharp pullback for a group of stocks that could seemingly do no wrong, with the average constituent nearly having tripled from the start of July through October 14. What gives?

First, the peak in speculative stocks came right around the time earnings season kicked off, when investors tend to cast a sharp eye on corporate fundamentals. There are lots of companies out there doing great on fundamentals, and these ain’t them.

Secondly, a quantum-specific risk factor: bulls got rugged. Stars had seemingly been aligning toward more government support for the nascent industry, culminating in rumors about the Treasury Department taking stakes in leading pure-play firms, only for those reports to be contradicted and then disappear without a trace.

Third and most importantly: AI has credit risk now. It’s a delicate dance, as megacap tech companies are trying to use their good names (and their good money) to support the overall growth of the AI ecosystem without exposing themselves to too much risk.

Oracle has now erased more than all the gains it made after reporting a massive pipeline of future demand, which was later revealed to be largely thanks to OpenAI. Not only have shares tumbled, but credit default swap spreads have widened; that is, investors no longer think it’s as safe a bet to make good on its own debts.

The Takeaway

That’s what happens when you’re poised to go on a multiyear capital expenditure binge to build out physical infrastructure to meet orders from a customer that is currently incinerating cash and has more multibillion-dollar spending commitments than a consortium of octopuses has tentacles.

And it’s not like there’s nothing else out there: 82% of S&P 500 companies reported a positive bottom-line beat and 77% reported a better-than-expected sales surprise in Q3. One might reasonably think, “Why am I continuing to invest more in companies that have a cursory to nonexistent relationship with profitability when there are oodles and oodles of bigger firms whose operations are doing quite well?”