Stock Decline After Earnings Release
Oracle shares fell more than 11% in after-hours trading on Wednesday. The decline came after the database and cloud services company announced that it had spent roughly $10 billion (approximately CZK 207 billion) in the quarter ending in November on building data centers for artificial intelligence customers such as OpenAI. This amount represents an unprecedented cash outflow in Oracle's history, forcing the company to borrow large sums. In September, it issued $18 billion (approximately CZK 373 billion) in bonds to finance these projects.
Oracle executives said on Wednesday that capital expenditures would reach $50 billion (approximately CZK 1 trillion) in the fiscal year ending in May 2026. That is $15 billion (approximately CZK 310.5 billion) more than the company had projected just three months earlier. Bankers and infrastructure lenders are becoming cautious due to the enormous debt associated with these data centers. Co-CEO Clay Magouyrk said analysts had estimated that $100 billion (approximately CZK 2 trillion) would be needed to complete the plans, but Oracle expects it will need less, perhaps substantially less, to finance the buildout.
Why Does Oracle Believe It Will Pay Off?
Nevertheless, the company maintains that these investments are worthwhile. According to Chief Financial Officer Doug Kehring, the increased capital expenditures in this fiscal year will generate an additional $4 billion (approximately CZK 82.8 billion) in revenue the following year. Oracle reported signed contracts worth $523 billion (approximately CZK 10.826 trillion) at the end of November, an increase of $68 billion (approximately CZK 1.4 trillion) from three months earlier. This growth was driven by new cloud server leasing agreements with companies such as Meta Platforms and Nvidia, whose chips Oracle purchases for artificial intelligence data centers. The question remains whether OpenAI and other customers will be able to pay these amounts and whether Oracle can build these complex facilities on time. The company expects its cloud revenue to reach $166 billion (approximately CZK 3.436 trillion) in fiscal 2030.
Stock Volatility and Market Value
Since Oracle announced major contracts with OpenAI and others, sending its shares to record highs, the stock has fallen 30% amid concerns that the future may not unfold according to the company's plans. Oracle has a market capitalization of more than $600 billion (approximately CZK 12.42 trillion).
Oracle recently sought to reassure investors that, as revenue grows in the coming years, its business of leasing servers equipped with Nvidia chips will become much more profitable than it is now. The Information reported on Oracle's recent difficulties in achieving high gross profit margins from leasing these Nvidia chips. In the November quarter, Oracle reported a 14% increase in revenue compared with the same period a year earlier. Revenue from cloud server leasing rose 68% to $4.1 billion (approximately CZK 84.87 billion), and Kehring indicated that this growth would accelerate in the current quarter. These November figures mean that Oracle's cloud business is roughly one-tenth the size of Amazon Web Services.
Anyone looking for reassurance that building artificial intelligence infrastructure will not break the bank will not be pleased with Oracle's latest earnings report. The company, which serves as a kind of barometer of Wall Street's concerns about AI, delivered several unpleasant surprises, including a quarterly cash outflow of $10 billion (approximately CZK 207 billion) and a massive increase in capital expenditures. Even more concerning is that it failed to provide satisfactory answers to two simple questions: How much will all of this cost, and what will happen if a key customer such as OpenAI cannot pay?
Sources: theinformation.com and bloomberg.com
