The tech firm's lackluster latest earnings have slashed more than $70bn from the worth of the software and data company established by Trump ally Larry Ellison, adding to mounting fears of a overheated market in artificial intelligence stocks.
Sharp Share Price Drop Comes After Revenue Shortfall
Shares in the firm plunged by eleven and a half percent in after-hours trading after it posted a disappointing 14% rise in sales to $16bn in the latest quarter, as it simultaneously disclosed plans to increase its AI spending by approximately $15 billion.
The business reported softer-than-forecast quarterly revenues for the quarter ending in November, with sales at its core cloud services division growing at a slower pace than projected, at thirty-four percent.
Market Concerns Over Investment and Leverage
Markets were further disappointed by a more moderate sixty-eight percent growth in revenues from its cloud infrastructure unit.
At the same time, investors were spooked by the company's elevated projections for AI investment. It now expects capex to jump by forty percent to $50 billion, with the bulk of the increase aimed at building data centres.
This heavy investment strategy comes amid a ballooning debt load, with Oracle's long-term debt having increased by 25% over the last twelve months to reach $99.9 billion.
"Honestly, the report was not dramatically bad, but it served to validate worries around heavy AI spending, financed by debt, with an uncertain timeframe for revenue generation," said a senior analyst.
Broader Market Implications and Ecosystem Concerns
Sustained excitement about the promise of AI tech has led to a sharp rise in market capitalizations in the past year, but there has been a rising number of warnings from regulators and executives who say stock market valuations could correct sharply if investors ended up being let down by the progress or adoption of AI technology.
While Oracle has established itself as a key tech player creating enterprise solutions for large corporations worldwide and has in recent years found strength in cloud computing, there are increasing questions about how dependent firms are growing on circular funding within the artificial intelligence industry.
Oracle reported that its metric of remaining performance obligations soared by 440% over the past year. However, market watchers were skeptical when it emerged that these contracts were propelled by new commitments from major customers like Meta and Amazon.
"Although these are high-quality customers, it will not allay fears that big tech's AI investments are becoming circular, which makes the sector vulnerable to a erosion of investor confidence," stated a research director.
"In summary, robust backlog increase was not enough to calm fears about AI and the enormous amount of investment spending needed by companies to develop AI infrastructure."
Broader Sell-Off in AI-Related Shares
Additional technology stocks also declined in extended trading following the Oracle results. Key performers included:
- Nvidia: Stock dropped by 1.3 percent.
- Alphabet (Google): Shares fell by 0.3%.
- SoftBank: In Japan, the AI investor shares plunged by 7.7 percent on Thursday.
