What Happened?

A number of stocks fell in the afternoon session after markets pulled back as a report raised concerns about artificial intelligence demand and profitability. 

Oracle shares lost more than 5% following news of its cloud business generating lighter margins than expected. According to internal documents cited in the report, the gross profit margin for this business was only 14%, a figure much lower than what analysts had expected. This suggested that the high costs of running the advanced chip infrastructure were weighing on profitability. Compounding these worries was the ongoing U.S. government shutdown, in its second week, with no clear resolution in sight from Washington. These updates drove investors away from riskier assets and towards safe havens, a trend highlighted by gold futures hitting a record $4,000 per ounce for the first time.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Spend Management Software company American Express Global Business Travel (NYSE: GBTG) fell 3.2%. Is now the time to buy American Express Global Business Travel? Access our full analysis report here, it’s free for active Edge members.
• Data Analytics company Strategy (NASDAQ: MSTR) fell 7.3%. Is now the time to buy Strategy? Access our full analysis report here, it’s free for active Edge members.
• Content Delivery company Fastly (NYSE: FSLY) fell 7.4%. Is now the time to buy Fastly? Access our full analysis report here, it’s free for active Edge members.
• Sales Software company Salesforce (NYSE: CRM) fell 3.2%. Is now the time to buy Salesforce? Access our full analysis report here, it’s free for active Edge members.
• Communications Platform company Twilio (NYSE: TWLO) fell 3.7%. Is now the time to buy Twilio? Access our full analysis report here, it’s free for active Edge members.

Zooming In On Fastly (FSLY)

Fastly’s shares are extremely volatile and have had 40 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 5 days ago when the stock gained 3.6% on the news that a share sale catapulted OpenAI to a staggering $500 billion valuation, making it the world's most valuable startup and fueling broad optimism for artificial intelligence. The deal involved current and former employees selling approximately $6.6 billion in stock to investors, including Thrive Capital and SoftBank. This landmark valuation is having a ripple effect across the market, bolstering investor confidence in the entire AI ecosystem. The enthusiasm has helped propel the tech-heavy Nasdaq 100 and the broader S&P 500 to record highs, as investors increasingly see the technology sector as the primary driver of market growth.

Fastly is down 11.7% since the beginning of the year, and at $8.14 per share, it is trading 28.3% below its 52-week high of $11.34 from December 2024. Investors who bought $1,000 worth of Fastly’s shares 5 years ago would now be looking at an investment worth $67.61.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.