What Happened?
A number of stocks fell in the afternoon session after markets pulled back as a report raised concerns about artificial intelligence demand and profitability.
Oracle shares lost more than 5% following news of its cloud business generating lighter margins than expected. According to internal documents cited in the report, the gross profit margin for this business was only 14%, a figure much lower than what analysts had expected. This suggested that the high costs of running the advanced chip infrastructure were weighing on profitability. Compounding these worries was the ongoing U.S. government shutdown, in its second week, with no clear resolution in sight from Washington. These updates drove investors away from riskier assets and towards safe havens, a trend highlighted by gold futures 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:
- Data Analytics company Health Catalyst (NASDAQ: HCAT) fell 3.2%. Is now the time to buy Health Catalyst? Access our full analysis report here, it’s free for active Edge members.
- Lending Software company Upstart (NASDAQ: UPST) fell 3.3%. Is now the time to buy Upstart? Access our full analysis report here, it’s free for active Edge members.
- Virtual Events Software company ON24 (NYSE: ONTF) fell 3.9%. Is now the time to buy ON24? Access our full analysis report here, it’s free for active Edge members.
- Listing Management Software company Semrush (NYSE: SEMR) fell 3.2%. Is now the time to buy Semrush? Access our full analysis report here, it’s free for active Edge members.
- Payments Software company Flywire (NASDAQ: FLYW) fell 5%. Is now the time to buy Flywire? Access our full analysis report here, it’s free for active Edge members.
Zooming In On Flywire (FLYW)
Flywire’s shares are somewhat volatile and have had 14 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 11 days ago when the stock gained 2.6% on the news that the release of key inflation data aligned with market expectations, sparking optimism for potential interest rate cuts. The August Personal Consumption Expenditures (PCE) price index, which is the Federal Reserve's preferred inflation gauge, came in as forecast, easing concerns about the central bank needing to maintain high interest rates for longer.
As a result, investor hopes for future rate cuts have been bolstered. Lower interest rates are typically beneficial for growth sectors like technology because they increase the valuation of future earnings. This positive sentiment was widespread, contributing to gains across major indexes, including the Dow Jones Industrial Average, S&P 500, and the tech-heavy Nasdaq.
Flywire is down 36.6% since the beginning of the year, and at $12.75 per share, it is trading 45.3% below its 52-week high of $23.30 from November 2024. Investors who bought $1,000 worth of Flywire’s shares at the IPO in May 2021 would now be looking at an investment worth $363.30.
Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading close to all-time highs, we prefer a lesser-known (but still profitable) semiconductor stock benefiting from the rise of AI. Click here to access our free report on our favorite semiconductor growth story.
