The PHLX Semiconductor Index (SOX) tumbled 3.57% on Wednesday to close at 12,206.46, as a wave of AI funding anxiety swept through the market. Nvidia (NVDA) and Broadcom (AVGO) were among the biggest drags on the S&P 500, underscoring the sector's vulnerability to rising capital intensity concerns.
Oracle's Spending Shock
Oracle (ORCL) shares plunged 8.9% in after-hours trading after the company unveiled a capital expenditure plan that could reach $95 billion for fiscal 2027, up sharply from $55.66 billion in fiscal 2026. To finance the buildout, Oracle expects to raise approximately $40 billion through a combination of debt and equity, including $20 billion from an existing at-the-market program. The news shifted investor focus from booming AI demand to the mounting costs of funding the infrastructure needed to support it.
Oracle's cloud infrastructure revenue surged 93% year-over-year to $5.8 billion in its fiscal fourth quarter, while total revenue rose 21% to $19.2 billion. For fiscal 2026, cloud infrastructure revenue hit $18.1 billion, up 77%. The company's remaining performance obligations (RPO) skyrocketed 363% to $638 billion, driven largely by AI contracts tied to graphics processing units (GPUs). Despite these strong demand signals, the funding question weighed heavily on sentiment.
Jacob Bourne, an analyst at eMarketer, noted, "The demand is real with cloud infrastructure revenue and backlog growing fast. But the funding question is getting harder, not easier."
Broadcom Disappoints
The Oracle news compounded existing pressure from Broadcom's earnings report last week. Broadcom posted AI chip revenue of $10.8 billion in its fiscal second quarter, up 143% year-over-year, but its forecast for fiscal third-quarter AI chip revenue of $16 billion fell short of the $16.36 billion analysts had expected. The stock had been priced to perfection, and the slight miss triggered a sell-off. Investors remain convinced that AI demand is real, but expectations have grown even faster than the underlying business.
TSMC Offers a Bright Spot
Taiwan Semiconductor Manufacturing Co. (TSM) provided some relief, reporting May revenue of NT$416.98 billion, up 30.1% year-over-year. Revenue for the first five months of 2026 rose 30.0%, signaling that demand for advanced chips remains robust despite the sell-off in U.S.-listed semiconductor and AI stocks. TSMC's results suggest that the underlying chip demand cycle is intact, even as valuations face headwinds.
Broader Market and Macro Headwinds
The funding concerns landed in a deteriorating market environment. U.S. equity indexes fell more than 1% on Wednesday, dragged lower by weak tech names. Sticky inflation data kept traders focused on interest rates, while fresh U.S.-Iran tensions added to risk-off sentiment. Higher interest rates tend to pressure growth stocks, as their valuations are more dependent on future earnings than near-term cash flows.
The risks extend beyond a potential demand slowdown. Rising financing costs, slower customer payments, and operational hurdles such as power availability, permitting delays, and local opposition could force AI chip buyers to scale back projects. A Reuters/Ipsos poll released Thursday found that 57% of Americans do not want a data center in their area, and 77% are concerned that AI-fueled data centers will drive up their electricity bills.
Looking Ahead
Oracle's first-quarter outlook and funding update will be closely watched. The company is guiding for total cloud revenue growth of 58% to 64% in U.S. dollars for fiscal Q1 2027. For the semiconductor rally to resume, investors will need to see that customer prepayments, reimbursements, and debt markets can keep pace with the unprecedented build-out. The path forward hinges on whether the industry can balance explosive demand with sustainable financing.
