The tech firm's disappointing quarterly results have wiped more than $70bn from the worth of the enterprise software giant established by Trump ally Larry Ellison, heightening escalating fears of a speculative bubble in AI-related stocks.
Sharp Stock Drop Follows Sales Miss
Stock in the company plunged by over 11 percent in after-hours trading after it posted a lower-than-expected 14 percent increase in revenues to $16 billion in the most recent quarter, while simultaneously disclosed plans to increase its AI spending by about $15bn.
The enterprise recorded weaker-than-expected three-month sales for the quarter ending in November, with revenue growth at its key cloud services business expanding at a more modest rate than anticipated, at 34%.
Investor Jitters Over Investment and Leverage
Shareholders were further disappointed by a more moderate 68% growth in revenues from its infrastructure business.
At the same time, the market were spooked by the firm's increased forecasts for AI investment. It now projects capital expenditure to leap by 40% to $fifty billion dollars, with the vast majority of the increase allocated for expanding data centres.
This aggressive investment strategy comes amid a growing debt load, with Oracle's corporate debt having surged by 25% over the last twelve months to reach $99.9bn.
"Frankly, the earnings release was not dramatically bad, but it served to confirm concerns around heavy AI spending, funded through debt, with an unknown timeframe for returns," said a market analyst.
Wider Sector Repercussions and Ecosystem Risks
Continued excitement about the potential of AI technology has led to a surge in stock prices in recent months, but there has been a rising number of warnings from policymakers and executives who warn stock market valuations could tumble if the market become disappointed by the development or commercial uptake of AI technology.
While Oracle has become an important technology provider creating software for major corporations worldwide and has more recently found strength in the cloud sector, there are growing concerns about how reliant companies are growing on circular funding within the AI ecosystem.
Oracle reported that its measure of remaining performance obligations rose by 440 percent over the last twelve months. However, market watchers were wary when it was revealed that these contracts were driven by large deals from major customers like Meta and Amazon.
"Although these are two solid customers, it will not soothe fears that big tech's AI investments are becoming circular, which makes the sector susceptible to a loss of market faith," stated a market strategist.
"In summary, strong contract growth was not enough to alleviate anxiety about AI and the enormous amount of capital expenditure required by companies to build AI capacity."
Broader Sell-Off in AI-Related Shares
Other AI and tech-related stocks also declined in extended trading following the Oracle results. Key movers included:
- Nvidia: Share price fell by 1.3%.
- Alphabet (Google): Shares declined by 0.3%.
- SoftBank: In Japan, the investment firm's shares tumbled by 7.7% on Thursday.
