Oracle shares tumbled 12% on Thursday as investors reacted to the company's massive spending plans for AI infrastructure, including $70 billion in capital expenditure and $40 billion in new debt and equity. The sell-off could erase about $72 billion in market value, highlighting concerns over cash burn and competition with cloud giants.
Oracle shares plunged 12% on Thursday, marking their steepest decline since January last year, as the company's aggressive spending on AI infrastructure and rising debt levels rattled investors. If losses hold, the stock would wipe off approximately $72 billion from Oracle's $578.83 billion market capitalization.
Oracle, a smaller player in the cloud-computing industry, has recently secured massive data-center deals with OpenAI and Meta to compete with rivals like Amazon and Microsoft. However, unlike these tech giants, Oracle lacks the large cash flows to fund such outlays, forcing it to burn cash and issue debt at a time when its traditional software business faces pressure from AI tools.
Key Points
- Oracle expects net capital expenditure of around $70 billion in the current fiscal year to accelerate AI data center development.
- The company plans to raise $40 billion in debt and equity, including a previously announced $20 billion stock issuance.
- Oracle's free cash flow deficit widened to $23.7 billion in fiscal 2026, up from $394 million in fiscal 2025.
- Analysts at Citizens JMP Securities and Melius Research raised concerns about margins, funding, and returns.
- Oracle trades at 24.56 times forward earnings, compared to Microsoft's 20.47 and Amazon's 25.19.
Oracle's accelerated data center buildout is pressuring near-term gross margins and raising questions about capital expenditure, funding, and returns, according to Citizens JMP Securities. Melius Research analysts noted that it is unclear if Oracle can stick to its capex plan if incremental business arises from OpenAI or Anthropic, and competitors are unlikely to slow spending.
Morgan Stanley expects AI-related global debt issuance to more than double to nearly $570 billion in 2026, with hyperscaler spending exceeding $1 trillion by 2027. Oracle's stock drop also weighed on the European IT sector, with SAP falling 4.4% and Capgemini sliding 3.6%.