Oracle slides as hefty AI spending, debt plans spook investors

Shares of Oracle slid on Thursday after the cloud giant’s higher-than-expected capital spending plans fuelled concerns over soaring AI data centre costs, overshadowing strong quarterly results.

Shares of the Austin, Texas-based company fell 7.2 per cent to US$186.70 in premarket trading and were on track to erode more than $40 billion from the company’s market valuation if losses hold.

The slide also weighed on the European IT sector, which was already under pressure following a downgrade by UBS Global Wealth Management. Shares of SAP tumbled 4.4 per cent, while Capgemini slid 3.6 per cent.

As Oracle scrambles to keep pace with hyperscale rivals, its mounting debt and pressured cash flows are fueling doubts over when these massive outlays will pay off.

Oracle said late on Wednesday that it expected capital expenditures of up to $95 billion in fiscal 2027, with plans to raise nearly $40 billion through a combination of debt and equity financing in 2027.

It has spent $55.66 billion in fiscal 2026, surpassing its $50 billion target, following a February announcement that it aimed to raise $50 billion through debt and equity sales.

“Unlike the so-called hyperscalers..., Oracle was not sitting on a pile of cash or generating huge amounts of cash flow heading into this spending cycle,” said Russ Mould, investment director at AJ Bell.

“This puts it more at the mercy of markets when it comes to funding any investment, and investors seem to be balking at plans to raise a further $40 billion.”

However, analysts at J.P. Morgan see this as a necessary trade-off to fuel stronger long-term revenue growth.

The brokerage said steady demand should support investor sentiment, provided Oracle’s cloud business keeps growing faster than those of major hyperscalers.

J.P. Morgan, however, pointed to some execution risks, including scaling data centres, sustaining bookings and managing its rising debt load.

Morgan Stanley expects AI-related global debt issuance to more than double to nearly $570 billion in 2026, with hyperscaler spending set to exceed $1 trillion by 2027.

Underscoring this borrowing trend, Amazon recently secured a $17.5 billion loan from a lender group including Citibank to fund its infrastructure expansion.

Oracle stock trades at 24.56 times its forward earnings estimates, compared with Microsoft’s 20.47 multiple and Amazon’s 25.19.

Reporting by Kanishka Ajmera in Bengaluru; Editing by Anil D’Silva, Reuters