Oracle’s AI Ambitions Clouded by Infrastructure Concerns

Oracle US68389X1054

As Oracle launches its global "AI World Tour" in Amsterdam today, the software giant's push to establish itself as a leader in artificial intelligence is facing headwinds. The company's management is using the event at the RAI Convention Centre to promote its cloud infrastructure for AI workloads. However, this promotional effort coincides with reports of significant service disruptions in one of its key data center regions, raising questions about operational reliability at a critical juncture.

This week, users of Oracle Cloud Infrastructure (OCI) in the London region experienced connectivity issues. Technology publication The Register reported the problems, which included "502 Bad Gateway" errors that impacted Oracle Fusion applications. While isolated outages are not uncommon in the cloud computing industry, their timing is particularly problematic. Oracle is actively marketing its infrastructure as the dependable foundation for business-critical AI operations. The lack of a detailed public explanation for the London incident's root cause leaves investors and clients to wonder whether it was an isolated event or indicative of broader capacity constraints.

The Staggering Cost of Expansion

Beneath the surface of Oracle's growth narrative lies a fundamental tension. The company is undertaking a massive capital expenditure program to expand its cloud capacity, specifically targeting developers of large language models. For the second quarter of fiscal year 2026, reported in December 2025, cloud revenue showed impressive growth, climbing 34 percent.

This expansion, however, comes at a steep price. Annual investment spending is projected to reach approximately $50 billion for the current fiscal year. The construction of GPU clusters and high-performance network connections is consuming enormous amounts of capital. Consequently, Oracle's traditionally strong free cash flow is experiencing temporary pressure as these investments are made.

The financial markets have taken note of this dynamic. Analysts at Morgan Stanley recently adjusted their outlook on the stock, reducing their price target to $213. Their analysis underscores a clear message: while revenue growth is evident, the company must now demonstrate that profitability can keep pace with its ambitious spending.

The Path Forward

All eyes will now turn to Oracle's upcoming earnings report on March 15, which will cover the third fiscal quarter. The key metrics to watch will be whether the company can translate its European roadshow into concrete contracts with major clients on the continent. Furthermore, the market will scrutinize the company's remaining performance obligations—a measure of future contracted revenue—to assess if they justify the multi-billion dollar annual investment program. For Oracle, the challenge is to prove that its vast expenditures are building not just capacity, but also sustainable, profitable growth in the competitive AI landscape.

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