AI Spending Jitters Shake Up Industrial and Defense Stocks

The market has been on a downhill streak, with the S&P 500 experiencing its fourth straight losing session. The tech sector, particularly those listed on the Nasdaq, is leading the decline. Investors are growing anxious about the rapid pace of spending on artificial intelligence infrastructure. A recent report suggested that talks between Oracle and Blue Owl Capital had hit a snag. The issue revolved around the financial viability of a major data center project. Oracle quickly refuted the claim, stating that they are moving forward with Related Digital and that the equity deal is still on track. However, this reassurance did little to calm investors' nerves. The sell-off wasn't limited to tech stocks. Industrials involved in data center construction and equipment supply also took a hit. Companies like Eaton, GE Vernova, Caterpillar, Vertiv, and Cummins saw their stocks dip. Investors are worried that project delays could lead to canceled orders, impacting these companies' bottom lines.GE Vernova, which had seen a boost from its recent Investor Day, has now lost almost all of those gains. Despite signing substantial gas turbine contracts and being sold out through 2028, the market seems to favor more stable stocks like Procter & Gamble. If GE Vernova's stock falls back to its October or November levels, there might be a buying opportunity. Meanwhile, defense stocks like Lockheed Martin, L3Harris, and RTX Corp also faced pressure. Reports indicate that the Trump Administration is considering limiting dividends, buybacks, and executive pay for contractors with over-budget and delayed projects. L3Harris and Lockheed Martin have been notable for their high capital deployment, while RTX Corp has been more conservative. Boeing, despite its defense project challenges, is unlikely to be affected by this potential executive order. The company has not returned any cash to shareholders over the past year, focusing instead on reducing its high debt levels. Analysts expect Boeing's financials to improve significantly by 2026. Looking ahead, all eyes are on Micron, a key player in the AI ecosystem, as it prepares to report earnings. Other notable companies reporting before the opening bell on Thursday include Darden, Cintas, Accenture, and CarMax. On the economic front, November CPI and weekly jobless claims data will be released.