Oracle’s $55.7 Billion Capex Splurge: How Record Demand, Massive Layoffs, and a Lost Microsoft Deal Are Testing Investor Patience

Oracle posted record revenue but stock fell 13% as AI-driven capex surged to $55.7B, debt hit $218.7B, and 21,000 jobs were cut.

The numbers are staggering on every front. Oracle posted a record quarterly revenue of $19.2 billion in the final three months of fiscal 2026, lifted the full-year top line to $67.4 billion, and saw its contractual backlog rocket by $85 billion in just one quarter to an eye?popping $638 billion. Yet the market’s reaction has been anything but celebratory. The stock has slumped roughly 13% since the start of the year, trading near €145 — almost half its 52?week high of €280.70.

The bullish case is built on the backlog. That $638 billion pile of remaining performance obligations largely consists of multi?year artificial intelligence contracts, including a reported $300 billion five?year deal with OpenAI and a partnership with Meta. Customers are paying upfront for graphics processors or supplying the hardware themselves, giving Oracle a buffer against speculative demand. The company’s own cumulative customer prepayments have reached $75 billion, reducing the need for external financing.

But the cost of capturing that AI bonanza is what has unnerved investors. Oracle burned through $23.7 billion in free cash flow over the past year as capital expenditures surged to $55.7 billion — more than double the previous year’s $21.2 billion. For the current fiscal year 2027, management has pencilled in net capital spending of roughly $70 billion, with gross outlays potentially hitting $90?$95 billion when customer contributions are factored in.

To fund that expansion, Oracle is turning aggressively to debt and equity markets. Total liabilities jumped 48% in the fourth quarter alone to $218.7 billion — the sharpest increase in company history. The company raised $43 billion in debt and $5 billion in equity last year, and it has already flagged a $20 billion equity placement and around $40 billion in combined external financing for the coming year. The scale of the financing is so unusual that for one $16.3 billion package, PIMCO stepped in as a $10 billion anchor investor after traditional banks balked.

The human cost of this AI pivot is also becoming visible. Oracle cut 21,000 jobs in fiscal 2026, reducing headcount from 162,000 to 141,000 — a 13% reduction the company explicitly attributes to the adoption of AI technologies. More than 12,000 of those cuts were in India. Restructuring charges totalled $1.84 billion, compared with just $374 million the prior year, and Oracle has not ruled out further job reductions.

Compounding the financial strain, a separate setback has added to the unease. Negotiations between Microsoft and Oracle over a potential multibillion-dollar cloud?leasing agreement reportedly collapsed. The alleged sticking point: Oracle Cloud lacks the FedRAMP certification required to handle U.S. government data. Amazon and Google already hold that clearance. Oracle denies the deal was under discussion, but the episode highlights a compliance gap that could cost the company access to lucrative regulated clients in a market where cloud capacity is sold out months in advance.

Analysts remain undaunted. The stock carries 28 buy ratings and no sell recommendations, and the average price target implies more than 50% upside. Technical indicators tell a different short-term story: the relative strength index sits at 35.9, deep in oversold territory, and the shares trade nearly 17% below their 200-day moving average.

The disconnect between operational strength and market sentiment boils down to one question: how much will Oracle have to spend, and what will it cost shareholders, to secure its AI future? The company points to long-term returns on invested capital in the high 20% range for its infrastructure projects. Critics see a business financing growth on credit, relying on unprecedented equity issuance and a debt pile that is growing faster than revenue. For now, the market is pricing not a demand problem — Oracle has that in spades — but a capital allocation problem that may take years to resolve.