Oracle falls most in six months on mounting data center costs

Oracle Corp shares declined by the most in six months after the company reported quarterly capital expenses that were higher than estimates, raising investor concerns about the profitability of the AI infrastructure business.

Capital expenditures, largely a measure of data center spending, were about $16.5 billion in the period ended May 31, bringing the annual total to $55.7 billion — higher than Oracle’s projection for $50 billion in spending.

The company expects to spend about $70 billion on net capital expenditures in the current fiscal year, which ends in May 2027, Chief Financial Officer Hilary Maxson said during a conference call after the results were released Wednesday. The reported figure will be $20 billion to $25 billion higher due to prepayment for some components, she said.

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Oracle, long known for its database software, has refashioned itself as a provider of computing power for artificial intelligence work and is embarking on a massive build-out of data centers for OpenAI and other customers. To handle the capital requirements, the company said it raised $43 billion in debt financing and $5 billion in equity during the fiscal year just ended.

Oracle shares dropped as much as 13% on Thursday after trading got underway in New York, their biggest intraday decline since Dec. 11. The shares fell 12% at 9:35 a.m. to $176.71. The stock had risen 35% over the past three months through Wednesday’s close, likely driven by better investor sentiment toward computing providers and OpenAI, Oracle’s most important customer, wrote Derrick Wood, an analyst at TD Cowen.

In fiscal 2027, the company plans to raise another $40 billion in equity and debt, including $20 billion in a previously announced program to sell shares from time to time at market prices.

The tech sector is facing fresh doubts about the returns on its unprecedented debt-fueled spending binge. Oracle has about $117 billion of debt in the Bloomberg US high-grade corporate bond index, making it the biggest issuer outside the financial sector.

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In the fiscal fourth quarter, revenue gained 21% to $19.2 billion, Oracle said Wednesday in a statement. Profit, excluding some items, was $2.11 per share. Analysts, on average, estimated adjusted earnings of $1.97 a share on revenue of $19.1 billion, according to data compiled by Bloomberg.

Sales in the closely watched cloud infrastructure business gained 93% to $5.8 billion. That marked a slightly faster increase than the 91% anticipated by analysts.

Total cloud revenue, including software applications and infrastructure, will jump about 61% in the quarter ending in August. That projection was just shy of analysts’ average estimate of 62%.

Remaining performance obligations, a measure of bookings, were $638 billion at quarter’s end, compared with an average estimate of $589.5 billion. Oracle said most of the new bookings were for large-scale AI contracts, in which the customer prepaid for the expensive servers needed for the work.

“This substantially reduces the amount of capital Oracle must raise to build out our AI data centers,” the company said.

Oracle’s large data centres for OpenAI are seeing “significant progress,” Co-Chief Executive Officer Clay Magouyrk said on the call. For example, the company has delivered 42% of capacity at its flagship site in Abilene, Texas, with an additional 35% to be delivered over the next three months, he said.

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Beginning in March, Oracle cut thousands of workers across the company. Several analysts said these moves were likely to boost margins and help offset the massive data center spending. The company reported it spent $1.8 billion on restructuring in the fiscal year, nearly five times more than it had a year earlier.