Global stock markets hit record highs after the Federal Reserve's latest interest rate cut, but concerns over overvalued AI stocks, driven by Oracle and Broadcom earnings misses, are raising red flags for investors.
 |
| Global markets see record highs, yet concerns about the sustainability of AI stock growth are mounting as Oracle and Broadcom report weak earnings, raising questions about overhyped valuations. Image: CH |
Business Desk – December 12, 2025:
U.S. stock markets reached new heights on Thursday, propelled by the Federal Reserve's decision to cut interest rates for the third consecutive time and a dovish outlook suggesting that further rate hikes may be off the table until at least 2026. The Dow Jones and S&P 500 closed at record highs, marking a strong finish for the day, while the Nasdaq Composite faced downward pressure due to concerns over the tech sector's sky-high valuations, particularly those linked to artificial intelligence (AI).
Despite the broader market rally, fueled by gains in industrials and financials, the steep drop in Oracle shares, following disappointing earnings and heavy investments in AI infrastructure, reignited fears that tech stocks—especially those tied to AI—are overvalued. Oracle’s 10.8% plunge after its revenue miss and increased spending on data centers to support AI expansion underscores a growing unease among investors about the sustainability of the AI-driven rally.
“While the Fed’s rate cuts have boosted market optimism, concerns about speculative AI investments are very real,” said Deutsche Bank managing director Jim Reid. As more tech companies, including Oracle and Broadcom, commit huge sums to AI expansion, investors are starting to question whether these aggressive investments will generate meaningful returns in the short-to-medium term.
The unease surrounding AI investments was not confined to the U.S. markets. Following Wall Street's record-setting session, Asian equities rose on Friday, but concerns over the high valuations of tech stocks, particularly those linked to AI, persisted. Major indices like Tokyo’s Nikkei 225 (+0.9%) and Hong Kong’s Hang Seng (+1.1%) saw gains, while the Shanghai Composite declined 0.5% amid mixed investor sentiment.
Oracle’s disappointing earnings, combined with Broadcom’s cautious AI sales outlook, sent ripples across global markets, fueling concerns about the long-term viability of AI stock rallies. Broadcom’s stock fell over 4% in after-hours trading, mirroring Oracle's struggles, and reinforcing the notion that AI investments may be overstretched. The global tech rally, heavily driven by AI, has seen companies like Nvidia reach record valuations, but as earnings reports from key players suggest, these valuations may be increasingly disconnected from the underlying business fundamentals.
“There is growing skepticism about whether these massive investments in AI are truly sustainable,” said Dave Grecsek of Aspiriant Wealth Management. “The market may be getting ahead of itself, betting on a future that is still uncertain.” Investors are now weighing whether the AI boom is a long-term trend or if the sector is simply another speculative bubble.
Despite growing concerns about AI’s role in tech stock valuations, the broader market sentiment remained positive, thanks to the Fed’s decision to cut interest rates. The Federal Reserve’s dovish stance, which includes signaling no rate hikes for 2026 in their baseline scenario, has helped to support a positive outlook for equities. Fed Chair Jerome Powell’s remarks on Wednesday, in which he suggested that policymakers do not foresee rate hikes in 2026, helped fuel optimism, leading to gains across major indices.
However, there is still uncertainty. The Fed’s decision to hold off on a fourth consecutive rate cut in January, combined with the dissent from three policymakers, indicates that the central bank's future policy stance remains complex. Nonetheless, market participants seem to be betting on further rate cuts, which, coupled with a cooling labor market, could fuel another equity rally into the new year.
The divergence between tech and non-tech sectors has been evident in recent trading sessions. The strong performances of the Dow and S&P 500, which rose 1.3% and 0.2%, respectively, contrast sharply with the 0.3% dip in the Nasdaq, which is more heavily weighted toward tech stocks. The rally in industrial and banking stocks suggests that broader market optimism is rooted in expectations of continued economic support from the Fed, while the tech sector faces increasing scrutiny over its soaring valuations, particularly in AI.
“There is a disconnect between the broad market’s optimism and the concerns surrounding AI valuations,” said Neil Wilson of Saxo Markets. “While rate cuts and a softening labor market offer hope for continued growth, tech stocks face headwinds from overblown expectations.”
International markets also reflect this mixed sentiment. In Europe, London’s FTSE 100 gained 0.5%, while the DAX and CAC 40 posted more modest increases. Oil prices, which had been falling recently, showed signs of recovery, with Brent crude and West Texas Intermediate both rising modestly. However, the sentiment in the Asian markets was more cautious, especially in Shanghai, where the tech sector's struggles weighed on investor confidence.
As stock markets continue to climb, concerns over the tech sector—especially AI investments—remain a significant point of contention for investors. While the Fed’s rate cuts have fueled optimism for broader markets, the reality is that AI stocks may be overvalued, with many of these companies aggressively investing in AI infrastructure without clear short-term returns.
With Oracle and Broadcom’s disappointing earnings serving as a reminder of the risks involved, investors are increasingly questioning whether AI’s meteoric rise is sustainable or simply the latest bubble in a tech-heavy market. As global markets react to these uncertainties, the question remains: Are AI valuations overhyped, or is this just the beginning of a long-term technological transformation?