Oracle shares slide 11% as AI capex surge outpaces cloud revenue growth

Oracle Corporation saw its shares tumble 11 per cent, marking the steepest single-day decline in nearly eleven months, after its latest earnings update raised concerns over the pace at which heavy artificial intelligence-related investments are translating into cloud revenue. The sell-off followed a period of strong gains for the company, with investors reacting to sharply higher spending on AI data centres and equipment that has yet to deliver expected returns.

The company reported capital expenditure of around $12 billion for the most recent quarter, up from $8.5 billion in the previous period and well above the $8.25 billion forecast by analysts. Executives also revised their full-year outlook, projecting capital expenditure of about $50 billion for the financial year ending May 2026, which is $15 billion higher than earlier estimates, according to a report by Whalesbook.

Investor unease has centred on the timing and scale of returns from Oracle’s expanding AI infrastructure. The company has been rapidly building data centres to support AI workloads for major clients including OpenAI, ByteDance and Meta Platforms, but the conversion of this spending into cloud revenue has been slower than expected, prompting questions on Wall Street about the long-term costs and timelines associated with such large-scale investments.

Cloud revenue in the fiscal second quarter rose 34 per cent to $7.98 billion, while the infrastructure segment grew 68 per cent to $4.08 billion, but both figures narrowly missed market estimates, adding to scepticism around near-term growth prospects.

Oracle’s aggressive expansion has also increased leverage and credit risk. The cost of insuring the company’s debt against default over five years climbed to its highest intraday level since April 2009, signalling rising investor concern about creditworthiness. During the quarter, Oracle reported negative free cash flow of $10 billion and currently carries total debt of around $106 billion.

Shares of Oracle closed down 11 per cent at $198.85 in New York on Thursday, the sharpest fall since January 27, and were already down roughly one-third from a record high reached on September 10. The decline marked a reversal for a stock that had previously rallied on optimism around large data centre deals.

Analysts at JP Morgan said investor expectations appeared to assume a faster payoff from infrastructure spending than is currently materialising. Emarketer analyst Jacob Bourne pointed to growing scrutiny over debt-funded expansion and concentration risk amid uncertainty surrounding AI investment, adding that the revenue miss was likely to intensify investor concerns.

The development has wider implications for the technology sector, particularly for companies investing heavily in AI infrastructure and cloud computing, highlighting the high capital requirements and potential lag between investment and revenue generation. Investors are expected to closely monitor how Oracle manages its debt levels and accelerates monetisation of its AI-driven infrastructure going forward.