Oracle Shares Plunge Over 10% as AI Spending Surge Outpaces Revenue Growth

Oracle Corp. shares tumbled more than 10% in after-hours trading after fiscal second-quarter results revealed that aggressive spending on artificial intelligence (AI) infrastructure is yet to translate into expected cloud revenue growth. The database software giant reported capital expenditures (Capex) of approximately $12 billion for the quarter-- nearly $3.7 billion above analysts’ estimates-- while could infrastructure revenue came in slightly below expectations at $4.08 billion.

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The cloud-computing company raised its Capex forecast for fiscal 2026 to roughly $50 billion, a $15 billion increase from its September projection. Meanwhile, fiscal second-quarter total revenue grew 14% year-over-year (YoY) to $16.1 billion, falling short of the $16.21 billion analyst consensus. Cloud sales rose 34% YoY to $7.98 billion, while cloud infrastructure revenue gained 68%.

Oracle's remaining performance obligations (RPO)—a measure of bookings—surged 438% YoY to $523 billion, driven by new commitments from Meta Platforms Inc. and Nvidia Corp. However, Principal Financial Officer (CFO) Doug Kehring indicated the additional $68 billion in quarterly bookings would generate $4 billion in revenue not until fiscal 2027, amplifying investor concerns about the timing of returns on massive infrastructure investments.

The disappointing results triggered declines across AI-related stocks, with Nvidia and its AI chipmaking rival Advanced Micro Devices (AMD) each dropping approximately 1% and cloud provider CoreWeave sliding more than 3% following Oracle's announcement.

Massive Capital Spending Raises Debt Concerns

Oracle's Capex reached $12 billion in the fiscal second quarter, jumping from $8.5 billion in the prior quarter and significantly exceeding the $8.25 billion analysts anticipated. The company’s free cash flow accordingly turned negative by about $10 billion, compared to analysts’ projection of negative $5.2 billion.

"The vast majority of our Capex investments are for revenue generating equipment that is going into our data centers and not for land, buildings or power that collectively are covered via leases," Kehring said on the earnings call. "Oracle does not pay for these leases until the completed data centers and accompanying utilities are delivered to us."

Kehring emphasized Oracle's commitment to maintaining its investment-grade debt rating and suggested the company would need "substantially less" than the $100 billion some analysts have projected for the buildout. He noted financing options including customers bringing their own chips and suppliers leasing equipment could help synchronize payments with receipts.

OpenAI Concentration Risk Weighs on Sentiment

Wall Street's mounting skepticism centers on Oracle's heavy reliance on OpenAI, which committed to spending more than $300 billion on Oracle infrastructure over five years through the Stargate data center project. Increased competition facing OpenAI from companies like Alphabet Inc.'s Google has intensified investor doubts.

"Oracle faces its own mounting scrutiny over a debt-fueled datacenter build-out and concentration risk amid questions over the outcome of AI spending uncertainty," said Jacob Bourne, an analyst at Emarketer. "This revenue miss will likely exacerbate concerns among already cautious investors about its OpenAI deal and its aggressive AI spending."

Kirk Materne, an analyst at Evercore ISI, noted investors want Oracle management to explain how spending plans could adjust if OpenAI demand changes. The stock has lost roughly a third of its value since reaching an all-time high on September 10.

Revenue Timing Emerges as Key Issue

While Oracle's bookings growth remains robust, the delay in converting infrastructure spending to revenue has become the primary investor concern. Fiscal second-quarter cloud infrastructure revenue of $4.08 billion and total could sales of $7.98 billion both fell marginally short of estimates, despite infrastructure revenue gorwoing 68% from a year earlier.

"Ultimately, it comes down to 'how is Oracle going to raise the money?'" said Rishi Jaluria, an analyst at RBC Capital Markets. "It's one thing to build a backlog, but having that backlog translate to revenue shows ability to actually meet those demands."

For the current fiscal third quarter, Oracle forecast total revenue growth of 19% to 22%, with cloud sales increasing 40% to 44%—both in line with analyst expectations. The company reaffirmed its annual revenue target of $67 billion, maintaining guidance from October.

Strategic Shift to Chip Neutrality

Oracle reported a $2.7 billion pre-tax gain from selling its stake in chipmaker Ampere Computing to SoftBank Group Corp., at an transaction that closed last month.The sale boosted adjusted earnings per share (EPS) to $2.26, beating the $1.64 consensus.

Oracle Chairman and CTO Larry Ellison said his company is "now committed to a policy of chip neutrality" and will continue purchasing the latest graphics processing chips from Nvidia, but "need to be prepared and able to deploy whatever chips our customers want to buy."

This marks the first earnings report under new CEOs Clay Magouyrk and Mike Sicilia, who succeeded longtime CEO Safra Catz. The company also counts ByteDance Ltd.'s TikTok and Meta as major cloud customers and added commitments from Airbus, Canon, Deutsche Bank and Panasonic during the quarter.