The tech-heavy Nasdaq has lost ground overnight, as cloud firm Oracle’s financial update sent investors away from many artificial intelligence-related stocks.

Meanwhile, the Dow hit a record high as investors rotated into value stocks after a Federal Reserve policy update that was less hawkish than expected.

Oracle shares sank about 11% after its quarterly forecasts fell short of analysts’ estimates and it warned that annual spending would run $US15 billion ($22.5b) higher than previously planned.

This stoked fears that its big push to court AI cloud customers was burning cash faster than generating profit.

The cost of insuring Oracle debt against default surged, with the company’s shares the biggest loser on the S&P 500, and on track for their biggest quarterly loss since mid-2001.

Investors fear that Oracle’s heavy reliance on debt financing could fuel an AI bubble similar to the dotcom bust of the early 2000s.

While Oracle helped drag other technology names lower, the Dow rallied along with the Russell 2000 small-cap index.

“The name of the game is market rotation. We’re seeing small caps, the Dow and cyclicals all start to do better in anticipation of a reacceleration of global growth,” Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments, told Reuters.

Investors also continued to digest the US central bank’s update from earlier in the week, when the Fed lowered borrowing costs by 25 basis points and chair Jerome Powell signalled a pause on further easing.

However, investors were relieved that the Fed still had two rate cuts on its dot plot as it balanced still-elevated inflation with signs of labor market weakness.

“The perception of further Fed easing is rippling across the market. The dollar is lower and the Treasury yield is lower and that’s triggering a risk-on impulse across stocks,” said Miskin.

 “The expectation was that the Fed would be more hawkish.”

Traders see at least 50 basis points of monetary easing next year on expectations that US President Donald Trump’s appointee as Fed chair is likely to be a policy dove. White House economic adviser Kevin Hassett is the frontrunner for the job.

Reporting with Reuters