Morning in New York: investors weigh risks in the AI sector

Daily review and forecast of events on the U.S. stock market from Mikhail Denislamov, Deputy Director of Freedom Capital Markets Research.

After Friday's sell-off caused by concerns over corporate reports in the technology sector and large-scale investments in AI-infrastructure, the market is trying to stabilize. Exchange players are reconsidering their strategies taking into account the busy macroeconomic calendar and the dense flow of events. However, on the whole, the investment community remains cautious. Doubts about the ability of technology companies to justify high valuations and active increase in capital expenditures continue to put pressure on the general sentiment. There is no consensus among traders as to whether the current correction is a phase of "digesting" the technology cycle or the beginning of a deeper revaluation.

Today, the Empire State Index of manufacturing activity from the New York Fed for December (consensus: 10.5 points, November: 18.7) will be released, which may indicate weakening momentum in the manufacturing sector. The December NAHB Home Builder Sentiment Index (consensus: 38 points, unchanged from November) will also be released. A low reading would indicate continued pressure from high mortgage rates and weak demand in the primary housing market. Adding to the picture of the day will be the speeches of the head of the FRB of New York John Williams and a member of the Board of Governors of the Federal Reserve System Steven Miran.

Futures on US indices show weakly positive dynamics. We assess the balance of risks for the upcoming trades as neutral with moderate volatility. We focus on S&P 500 fluctuations in the range of 6780-6880 points (from -0.7% to +0.7% to the previous session's closing level).

- Tesla (TSLA) shares are rising in the premarket after CEO Elon Musk confirmed that the company is testing driverless cars without a test driver in the cabin on public roads. The news was seen as an important step towards the creation of a robotaxi network.

- Quotes of ServiceNow (NOW) are down within 2% before the opening of the main trading session, reacting to Bloomberg's report about negotiations on the purchase of cybersecurity startup Armis. The potential deal worth up to $7 billion could be the largest takeover in ServiceNow's history.

- The rally in the securities of Tilray Brands (TLRY) and Canopy Growth (CGC) continues on expectations that President Donald Trump may sign an executive order to reclassify cannabis at the federal level on December 15. This will fundamentally change the regulatory environment and improve the long-term outlook for all producers of these products.

- Shares of iRobot (IRBT) collapsed on news of its bankruptcy filing.

- The sale of Costa Coffee, initiated by Coca-Cola (KO), has been jeopardized by a disagreement in the valuation of the asset.

December 12 trading on the U.S. stock exchanges ended in a noticeable minus. S&P 500 fell by 1.07%, NASDAQ 100 fell by 1.91% (for both benchmarks the whole last week ended in the negative territory). Dow Jones declined by 0.51%, Russell 2000 lost 1.51%.

Negative dynamics was provoked by movements of quotations of the technological sector, which was the leader of the decline (XLK: -2.89%). NVIDIA (NVDA: -3.27%) exerted the greatest pressure on it. The defensive sector of consumer staples (XLP: +0.79%) became the leaders of growth.

Broadcom (AVGO: -11.43%) shares collapsed despite the strong quarterly report and management's confident outlook. Investors focused on keeping the annual guidance unchanged, taking it as a negative signal amid high expectations. A Bloomberg report about a possible delay in the construction of data centers for OpenAI put pressure on Oracle shares (ORCL: -4.47%). Although the company denied this information, the news intensified concerns about the risks associated with large-scale investments in AI.

Chicago FRB head Austan Goolsbee, who voted against easing monetary conditions at the Fed's last meeting, said he sees no risk in waiting for more inflation data. His Kansas City colleague Jeffrey Schmid, also in favor of keeping the rate unchanged, believes inflation is still too high. The lack of a unified position within the Open Market Committee, according to stock players, increases uncertainty about the future course of monetary policy.

- Washington Post reports that the White House intends to loosen federal restrictions on the production, distribution, and use of marijuana caused Tilray Brands (TLRY: +44.1%) and others in the industry to soar. The plan to reclassify cannabis creates fundamental growth for the entire industry.

- A strong fiscal fourth quarter report, in which the company beat revenue and earnings expectations, drove Quanex Building Products (NX: +9.6%) shares higher. The company's management was positive about synergy prospects from the recent Tyman acquisition, which added to investor optimism.

- RH (RH: +5.7%) reported below-expected earnings for the latest quarter, its own revenue guidance was weakened by import tariff pressure. Nevertheless, investors focused on management's comments on improving industry trends, strong free cash flow and the prospects for new product launches in 2026.

- Speculation surrounding the takeover of Warner Bros. Discovery (WBD: +1.7%) continues, lending support to its shares. According to the NY Post, Paramount Skydance may raise its offer to $33 per share, with Netflix also considering a new offer. This creates the potential for further growth in the asset's price.

- Shares of Fermi (FRMI: -33.8%) collapsed after the termination of a key agreement with its first tenant jeopardized the company's future cash flows.

This article was AI-translated and verified by a human editor