Shares in Oklo (OKLO 1.70%) were lower by 9% as of 11 a.m. this morning. The sell-off in the small modular reactor (SMR) developer comes as the market, at least for now, shifts away from the more speculative stocks exposed to the AI/Data Center investing theme.
Why the market is selling off AI/Data Center stocks
It's often the case that investors choose to "sell off on the news", and in this case, it was Nvidia's third-quarter results released on Wednesday. It's not that there was anything wrong with Nvidia's earnings report, but whenever a stock or sector gets hot, there's always an underlying concern that a bubble might be forming.
NYSE: OKLO
Key Data Points
As such, a stock like Oklo, which is loss-making, has no revenue, and whose prospects are driven by the promise of AI/data center demand, will be sold off when the market gets worried.
In a nutshell, investors are concerned that the substantial investment made in AI may not yield as much earnings enhancement and productivity as the market has priced in. Moreover, concerns have been notably raised, notably by "Big Short" investor Michael Burry, that the assumptions made by hyperscalers like Oracle regarding the useful life of their network equipment and servers may prove overly optimistic due to the high rate of technological obsolescence. As such, the returns on current capital spending investment may prove flattering.
Image source: Getty Images.
Where next for Oklo
It's a sentiment-led sell-off, and while investors are right to be cautious, it's tough to tell precisely which innings of AI investment the market is in right now. As such, don't be surprised if the market recovers in due course.
History suggests that an AI bubble will form and eventually burst. However, it also shows that many investors sell out too soon, often before the underlying long-term growth trend in an industry is achieved. There's nothing that has happened in the last few days that will definitively tell investors where they stand in those innings.
