Oracle (ORCL) suffers worst plunge since 2001...Wall Street mogul warns of 'end of big tech era'

▲ Oracle (ORCL), Nvidia (NVDA), Microsoft (MSFT), Apple (AAPL), US Tech Stocks/AI Generated Image

A warning has emerged that cracks are appearing in the US tech stock-led rally, and the market's next capital flow could shift from large artificial intelligence beneficiaries to undervalued small-cap value stocks. As Oracle (ORCL) plummeted nearly 20% in a week, marking its worst weekly performance since 2001, analysis suggests that the weakness across semiconductors and tech stocks may be more than just a simple correction, possibly signaling a larger downturn.

Kevin Smith, founder and CEO of Crescat Capital, warned in an interview with CNBC on June 27 (local time) that the market may be nearing a significant peak. Smith cited record valuations, record financial imbalances, and overly narrow credit spreads, stating, “There are certainly imbalances that could lead to something bigger unfolding.”

Weakness in tech stocks is already evident in major names. SanDisk (SNDK), Western Digital (WDC), Seagate (STX), and Oracle all posted losses on both daily and weekly bases, and the tech sector ETF also fell by about 2% in a day. Semiconductor stocks are under greater pressure, indicating a weakening leadership in the tech sector, which had been driving the market.

Smith also pointed to excessive optimism and changes in corporate finance flows as warning signs. He noted that the trend centered on share buybacks is shifting to an increase in new IPOs and additional stock issuance, and that market breadth is weakening. He also viewed the growing capital expenditure burden on large cloud and AI infrastructure companies, leading to negative free cash flow, as a key burden on the market.

In terms of investment strategy, he suggested both defense and rotation. Smith stated, “Tail risk defense is very important in the current environment,” and revealed that he is using S&P 500 put options. He believes that with volatility still low, it's a good environment to build defensive positions, and explained that high-yield ETF put options are also a reasonable choice to prepare for the possibility of rapidly widening credit spreads.

However, Smith did not believe that all risky assets should be avoided. He suggested the possibility of a major rotation of funds from large-cap/mega-cap tech stocks to undervalued commodities and small-cap value stocks, naming metals and mining, especially exploration-focused mining companies, and biotech as preferred sectors. Biotech has been neglected for a long time since COVID, with some companies trading at values lower than their cash holdings, while metals and mining were mentioned as areas that could benefit from a rotation into undervalued commodities after the precious metals correction.

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