Oracle Stock Drops After $15B Data Center Spending Hike
▼ Summary
– Oracle’s stock fell 11% after it reported quarterly revenue of $16.1 billion, which was below analyst estimates despite a 14% year-over-year increase.
– The company significantly increased its capital expenditure forecast for the year by over 40% to $50 billion, with $12 billion spent last quarter on data centers for AI.
– Oracle’s long-term debt rose 25% to $99.9 billion as it invests heavily to compete with larger cloud providers like Amazon and Microsoft in supplying AI computing power.
– While future revenue bookings rose 15% to $523 billion, supported by deals with Meta and Nvidia, Oracle maintained its unchanged full-year revenue forecast of $67 billion.
– Investor enthusiasm for Oracle’s AI push has waned due to concerns over the massive borrowing and spending required, including contracts with OpenAI which entail significant future financial commitments.
Oracle’s stock price experienced a significant decline following its latest earnings report, which revealed a substantial increase in planned capital expenditures alongside revenue figures that fell short of market expectations. The company announced a $15 billion hike in its data center spending for the current financial year, a strategic move aimed at capturing a larger share of the booming market for artificial intelligence infrastructure. This aggressive investment plan, however, was met with investor skepticism, leading to a sharp pre-market drop in share value.
The financial details showed revenue for the last quarter reached $16.1 billion, marking a solid 14 percent increase from the previous year. Despite this growth, the figure did not meet the forecasts set by Wall Street analysts. Concurrently, the company dramatically raised its full-year capital expenditure forecast by over 40 percent, bringing it to a total of $50 billion. Spending in the most recent quarter alone surged to $12 billion, far exceeding the anticipated $8.4 billion, as the company accelerates its data center construction.
This spending surge is part of a broader strategy to compete more effectively with cloud computing giants like Amazon, Microsoft, and Google. Oracle is striving to provide the immense computing power required by leading AI firms such as OpenAI and Anthropic to develop and operate their sophisticated models. Company leadership, including co-CEO Clay Magouyrk, has defended these substantial investments, asserting that new cloud contracts will rapidly contribute to both revenue and profit margins for their infrastructure division.
Nevertheless, the financial outlook presented a mixed picture. While the company maintained its previous full-year revenue forecast of approximately $67 billion, it projected an additional $4 billion in revenue for the following fiscal year. A positive indicator was the 15 percent rise in total bookings for future revenue, known as remaining performance obligations, which climbed to $523 billion. This growth was bolstered by significant agreements with major technology players like Meta and Nvidia.
Investor sentiment toward Oracle’s AI ambitions has been volatile. The stock had rallied after the previous earnings report in September, fueled by the announcement of over $300 billion in new bookings largely tied to data center deals with OpenAI. However, those gains have since eroded. Concerns are mounting over the massive debt required to fund this infrastructure build-out, with long-term debt now standing at $99.9 billion, a 25 percent year-over-year increase. There is also apprehension regarding the long-term financial commitment of partners like OpenAI, which has pledged to spend an extraordinary $1.4 trillion on computing power over the next eight years, raising questions about sustainability and future payment reliability.
(Source: Ars Technica)
