Oracle’s Bold AI Bet Sends Shares Tumbling

Oracle US68389X1054

Oracle's latest financial results have delivered a jolt to investor confidence. While the company posted solid earnings and a record-breaking order backlog, the market's focus has been squarely captured by fears over skyrocketing expenditures. Management is doubling down on an aggressive artificial intelligence strategy, but the immediate financial toll is severe: a sharp increase in debt and deeply negative cash flow.

A significant warning sign emerged from a disconnect between future orders and current sales. The company's remaining performance obligations (RPO) soared by over 430% to $523 billion, fueled by major deals with clients like Meta, Nvidia, and OpenAI. Despite this staggering backlog, Oracle's quarterly revenue of approximately $16.1 billion fell short of market expectations.

The core issue is one of execution speed. Oracle is struggling to convert its massive pile of orders into recognized revenue quickly enough. Delays in data center construction projects are hampering monetization efforts. Consequently, the market has adopted a "show-me" attitude toward the stock. For a sustained share price recovery, Oracle must demonstrate that its enormous investments can generate profitable revenue streams in a timely manner, rather than merely inflating its debt load.

A Staggering $50 Billion Expenditure Plan

The primary catalyst for the intense selling pressure is not current operations but future spending plans. Oracle has dramatically revised its capital expenditure (CapEx) forecast upward for fiscal year 2026. The corporation now intends to invest $50 billion, a substantial increase from its originally planned $35 billion.

Company executives attribute this strategic pivot to "unlimited" demand for AI infrastructure. However, for risk-averse shareholders, the near-term financial burdens outweigh the long-term potential. In the second quarter alone, investment outflows reached $12 billion—roughly $4 billion more than the market had anticipated. This aggressive spending spree is raising serious questions about capital efficiency.

Balance Sheet Strain Becomes Evident

The weight of these massive investments is leaving clear marks on Oracle's financial position. Over the six months ending in November, free cash flow plunged deeply into negative territory, landing at approximately minus $10.3 billion. Simultaneously, total debt climbed to around $108 billion.

Market analysts are already cautioning about further strain. To fulfill its AI-related contracts, Oracle may need to take on up to $100 billion in additional debt over the next four years. Although the CEO has attempted to reassure stakeholders, the prospect of a debt-fueled expansion is dampening sentiment. The equity has shed roughly 16% of its value over a 30-day period and is currently trading at 169.68 euros.