The race to AI is taking its toll: Oracle shares fall despite strong reports

Last night, the company reported its financial results for the fourth quarter of fiscal year 2025, and although it beat analysts’ forecasts on the top and bottom lines, the stock reacted with a sharp drop of about 8% in early trading on Wall Street (to a price of about $187). The main reason: the astronomical price tag required to win the AI ​​arms race, and investors’ fear of stock dilution and heavy debt pile-up.

Leap into the cloud and rack up orders of half a trillion dollars

At first glance, Oracle’s report shows phenomenal performance, driven primarily by the accelerated migration of customers from on-premises software to advanced cloud infrastructures. Adjusted earnings per share stood at $2.11, compared to analysts’ expectations of $1.96 – a jump of about 20% compared to last year. Total revenues grew by 21% and amounted to $19.18 billion, slightly above the market consensus ($19.10 billion). The revenues from cloud infrastructure registered a jump of 93% and amounted to 5.8 billion dollars. The company’s future order backlog jumped by an unusual rate of 363% to 638 billion dollars (compared to an expectation of 595.6 billion dollars).

Bank of America analysts estimate that more than 50% of Oracle’s current order backlog originates from huge contracts with OpenAI. These are transactions in which end customers paid in advance for the capacity or supplied the graphics processors (GPUs) themselves, in order to ensure the allocation of corridor areas and energy in the company’s server farms.

Oracle’s management, led by CEO Clay Magork, remained optimistic and even raised the profit forecasts going forward: they believe the adjusted profit forecast for the next quarter will be $1.72-1.76 per share, above analysts’ expectations of $1.68. The company’s revenue forecast for the first fiscal quarter of 2027 is for growth of 27% to 29% (in line with market expectations). The company approved the target Revenues for fiscal year 2027 to $90 billion.

Burning cash and raising $40 billion

So if the report was so strong, why did the stock fall so sharply? As mentioned, many analysts pointed to Oracle’s increasing capital expenditures in favor of expanding its AI infrastructure.

In fiscal 2026, Oracle’s capital expenditures jumped 162% to $55.7 billion (well above expectations of $50.8 billion). As a result, the company recorded negative free cash flow of $23.7 billion.

To finance this ambition, Oracle unveiled another aggressive equity and debt raising program. It is expected to raise approximately $40 billion in fiscal year 2027 through a combination of debt and equity, which includes the sale of $20 billion worth of shares. This, after in 2026 it had already raised 43 billion dollars in debt and 5 billion dollars in equity. The fear in the market is that the current debt, which has already swelled to 162 billion dollars, pushes the company’s financial strength index into an area defined as a “grey area” and dangerous.

In addition to this, some analysts pointed to a minor miss in Oracle’s cloud business revenues, which stood at $9.91 billion compared to expectations of $9.99 billion, as another possible reason for the negative sentiment created among investors.

What do the analysts say?

Analysts are divided between the assessment of the long-term potential of AI activity and the immediate fear of eroding profit margins and diluting shareholders.

Uzi Levy, director of overseas research at Mizrahi Tefahot, explains that “the report was indeed strong, but the market reacted to the future plans. The sharp drop was due to serious investors’ concerns about temporary pressure on the gross profit margin following the accelerated expansion costs and the massive construction of new data centers, alongside the company’s plans to raise capital of approximately 40 billion dollars in the fiscal year 2027 to finance these capital investments.”

Gil Luria, an analyst at the DA Davidson investment house, said in an interview with the CNBC network that “This is the type of quarter we define as mixed. Oracle’s current order backlog is now larger than that of Microsoft, Amazon and Google combined. They have a backlog of orders in the field of AI that needs to be delivered that is bigger than any of the big three cloud giants.” He added that “much of the disagreement in the market now revolves around raising capital. They will need $40 billion during the fiscal year, but they remain consistent with their previous statement that no additional capital will be raised in the current calendar year.”

It is worth noting that Oracle’s stock came to the reports when it is about 20% lower than its most recent all-time high set on June 1. Since the beginning of the year, the stock shows a positive return of 3%.