Remember when AI stocks could do no wrong? When every mention of “artificial intelligence” sent share prices to the moon faster than you could say “ChatGPT”? Well, those days just hit a speed bump the size of a small mountain.
This week, the AI darlings finally had their reality check. Oracle (ORCL), Nvidia (NVDA), Broadcom (AVGO), and CoreWeave (CRWV) all took a beating that would make a piñata jealous. The trigger? Oracle’s $10 billion data center project in Michigan fell through when Blue Owl Capital basically said “nah, we’re good” and walked away.
Here’s the thing that’s got Wall Street sweating: Oracle burned through $12 billion in capital expenses this quarter (analysts expected $8 billion), plans to ramp up spending from $35 billion to $50 billion this fiscal year, and posted a negative $10 billion in free cash flow. That’s not a typo – negative ten billion. It’s like watching someone max out their credit cards to buy lottery tickets.
But Oracle isn’t alone in this “spend money to make money (eventually)” strategy. The whole AI sector has been operating on the “fake it till you make it” principle, pouring billions into data centers and infrastructure while crossing their fingers that the profits will magically appear.
The problem? When you’re building castles in the cloud (literally), and the financing dries up, things get ugly fast. Broadcom saw its margins shrink because AI products are less profitable than their boring old legacy stuff. Nvidia dropped 3%+ and dragged the entire S&P 500 down with it because, surprise, when you’re that big, your problems become everyone’s problems.
So what’s a smart investor to do? Here’s where it gets interesting.
Instead of doubling down on the AI hype train, savvy money is rotating into what experts call “AI Survivors” – companies that AI can’t kill because they deal with real-world stuff that still needs human hands.
Think about it: No matter how smart AI gets, it can’t grow your avocados, fix your plumbing, or perform your surgery (yet). These “old school” businesses might seem boring compared to the flashy AI stocks, but boring often means profitable and sustainable.
The three golden rules for AI Survivors are simple:
1. High human interaction that can’t be automated
2. Physical goods or experiences in the real world
3. Proven business models with actual revenues and profits (not just promises)
Look, AI isn’t going anywhere – it’s still going to transform everything. But this week’s selloff is a wake-up call that not every company with “AI” in their pitch deck is destined for greatness. Some are destined for spectacular face-plants.
The smart play? Take some profits off the table from your AI high-flyers and park that money in companies that make real things for real people. Because when the AI bubble eventually pops (and bubbles always pop), you’ll want to be holding something more substantial than promises and PowerPoints.
Remember: In investing, as in life, it’s not about being the smartest person in the room – it’s about not being the last one holding the bag when the music stops.