Strong report didn't help Oracle: data center costs overshadowed by rapid growth from AI

Shares of software developer and owner of cloud service for AI Oracle collapsed on the postmarket on Wednesday, June 10, by about 10%. The company reported that it exceeded its annual forecast for capital expenditures and intends to borrow an additional $20 billion to develop infrastructure for artificial intelligence. Investors are concerned about the company's high leverage even though its quarterly revenue and earnings were better than market expectations.

Oracle's capital expenditures, which mainly reflect the cost of building and equipping data centers, amounted to about $16.5 billion in the last quarter, follows from the company's statements for the fourth quarter and the entire fiscal year 2025. At year-end, that figure rose 162% to $55.7 billion, exceeding Oracle's forecast of $50 billion, Bloomberg notes.

In addition, Oracle said it expects to raise $40 billion through debt and equity financing, including a previously announced $20 billion stock offering. In the fiscal year that ended, the company has already raised $43 billion in debt securities and $5 billion through a stock offering, CNBC recalls.

In the current fiscal year, Oracle expects to spend about $70 billion on capital expenditures, Oracle CFO Hilary Maxson said, Bloomberg reports. At the same time, the figures will be $20-25 billion higher due to advance payments for some components, said Maxon.

The technology sector as a whole is now facing investor doubts about whether the unprecedented spending on AI development, which is increasingly being financed with debt, will pay off, Bloomberg writes. Oracle accounts for about $117 billion of debt in the Bloomberg US Investment Grade Corporate Bond Index. This makes the company the largest issuer of bonds among non-financial companies included in this index, the agency emphasizes.

"Demand is real, and cloud infrastructure revenue and order books are growing rapidly. But the funding issue gets tougher, not easier, when capital expenditures exceed estimates and free cash flow remains negative," eMarketer analyst Jacob Bourne said in a statement to Reuters.

Oracle's revenue in the fourth quarter of fiscal 2026, ended Ma. 31, rose 21% year-over-year to $19.18 billion. Analysts polled by LSEG had expected $19.1 billion, CNBC writes. Adjusted earnings per share rose a quarter to a record $2.11, versus expectations of $1.96. Net income rose 23% to $4.22 billion.

Revenue in the cloud business added 47% and reached $9.91 billion. Consensus forecast StreetAccount was $9.97 billion, notes CNBC. Revenue specifically in the cloud infrastructure segment jumped 93% to $5.8 billion. For comparison, the market leader - Amazon Web Services - received $37.59 billion in revenue for the quarter ended in March.

Oracle's remaining performance obligations (RPO) - the volume of orders for which revenue has not yet been recognized - reached $638 billion on May 31, up 363% year over year. Analysts had expected $595.7 billion, CNBC noted. The company explained that the major contributors to RPO growth in the third and fourth quarters were large AI infrastructure contracts. In many cases, customers either pay in advance for the purchase of graphics processing units (GPUs), or independently purchase them and transfer them to Oracle. According to the company, such a scheme allows to significantly reduce the amount of Oracle's own investments in the construction of data centers. Analysts at Bank of America, who recommend buying Oracle shares, note that more than half of RPO falls on contracts with OpenAI, writes CNBC.

The company maintained its revenue forecast for fiscal 2027 at $90 billion, but raised its adjusted earnings per share forecast to $8.05. Analysts were expecting $8.01 per share on revenue of $88.9 billion, CNBC reported. For the current quarter, Oracle forecasts adjusted earnings per share in the range of $1.72-1.76 on revenue growth of 27-29%. The LSEG consensus was for $1.68 per share and revenue of about $19.06 billion, a growth of about 28%.

There is "significant progress" on the data centers that Oracle is building for OpenAI under a $300 billion contract, Oracle co-CEO Clay Maguirk said on a conference call. At the flagship facility in Texas, Oracle has already put 42% of its planned capacity online, with another 35% to be ready within the next three months, he said.

In May, the media reported that Oracle had problems with power supplies to the data center being built for OpenAI in New Mexico due to objections from local residents and environmental activists. The company refused to build a gas-fired power plant and instead decided to cooperate with fuel cell manufacturer Bloom Energy to generate electricity directly at the site.

Shares of Oracle have grown by 35% over the last three months. This was probably helped by improved investor sentiment toward suppliers of computing power, as well as OpenAI - the company's key customer, Bloomberg quotes a note by TD Cowen analyst Derrick Wood.

This article was AI-translated and verified by a human editor