What Happened?

A number of stocks fell in the afternoon session after reports revealed tech giant Oracle is generating lower-than-expected margins in its cloud business and losing money on Nvidia chip rentals. 

The news caused Oracle's shares to tumble over 5% and sparked a wider tech sell-off, pulling the S&P 500 and Nasdaq down. Investors are growing concerned about the actual strength and profitability of artificial intelligence demand, which has been a primary driver of the market's recent record-breaking run. Oracle's struggles suggest that the massive capital investments required for AI, such as acquiring expensive chips, may not be translating into immediate or guaranteed profits. This has led to broader anxiety that the AI boom's financial returns might be less certain than previously anticipated, causing traders to pull back from the sector. 

Compounding these worries was the ongoing U.S. government shutdown, in its second week, with no clear resolution in sight from Washington. This political uncertainty drove investors away from riskier assets and towards safe havens, a trend highlighted by gold 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:

• Analog Semiconductors company Magnachip (NYSE: MX) fell 2.8%. Is now the time to buy Magnachip? Access our full analysis report here, it’s free for active Edge members.
• Analog Semiconductors company Analog Devices (NASDAQ: ADI) fell 2.6%. Is now the time to buy Analog Devices? Access our full analysis report here, it’s free for active Edge members.
• Analog Semiconductors company onsemi (NASDAQ: ON) fell 3.7%. Is now the time to buy onsemi? Access our full analysis report here, it’s free for active Edge members.

Zooming In On onsemi (ON)

onsemi’s shares are very volatile and have had 27 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 19 days ago when the stock gained 4.9% on the news that a wave of positive sentiment boosted the semiconductor sector as chip giant Nvidia announced a major partnership with Intel. 

The industry-wide rally ignited when Nvidia revealed it was investing $5 billion into rival Intel. The two companies teamed up to work on custom data centers for artificial intelligence and new personal computer products. This news sent shockwaves through the market, causing Intel's shares to surge. Adding a unique twist to the day's events, onsemi received an unexpected endorsement from FBI Director Kash Patel during congressional testimony. He called the company a "good investment," which reportedly caused the stock to jump within minutes of his comment, adding to the upward momentum.

onsemi is down 22.1% since the beginning of the year, and at $48.05 per share, it is trading 35.7% below its 52-week high of $74.70 from October 2024. Investors who bought $1,000 worth of onsemi’s shares 5 years ago would now be looking at an investment worth $2,058.

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