Explained: Why Oracle shares plunged despite beating estimates

Shares of Oracle Corporation tumbled despite the company reporting stronger-than-expected quarterly results, as investors focused on the mounting costs of its AI expansion rather than its earnings beat.

For the fiscal fourth quarter, Oracle posted revenue of $19.18 billion, up 21% year-on-year and ahead of analysts' estimates of $19.1 billion. Adjusted earnings came in at $2.03 per share, also surpassing expectations of $1.96, according to LSEG.

However, the company's ambitious AI infrastructure push continues to worry investors. Oracle plans to spend around $70 billion on capital expenditure this fiscal year as it ramps up data-centre capacity to serve AI customers, including OpenAI.

To finance this expansion, the company said it will raise $40 billion through debt and equity, including a previously announced $20 billion share sale. This comes after Oracle raised $43 billion in debt and $5 billion in equity in the previous fiscal year.

The scale of spending has intensified concerns over profitability and cash generation. Oracle's free cash flow remained deeply negative at $23.7 billion, raising questions about how quickly its AI investments will translate into meaningful returns.

Analysts have also flagged risks around funding requirements, margin pressure and the company's ability to keep pace with cloud giants such as Microsoft and Amazon, reported Reuters.

In essence, while Oracle's latest results impressed, the market reaction reflected investor anxiety over whether its costly AI bet will eventually deliver sufficient profits to justify the massive outlay.