Shares of Oracle slid on Thursday after the cloud giant\u2019s higher-than-expected capital spending plans fuelled concerns over soaring AI data centre costs, overshadowing strong quarterly results.<\/p>\n
Shares of the Austin, Texas-based company fell 7.2 per cent to US$186.70 in premarket trading and were on track to erode more than $40 billion from the company\u2019s market valuation if losses hold.<\/p>\n
The slide also weighed on the European IT sector, which was already under pressure following a downgrade by UBS Global Wealth Management. Shares of SAP tumbled 4.4 per cent, while Capgemini slid 3.6 per cent.<\/p>\n
As Oracle scrambles to keep pace with hyperscale rivals, its mounting debt and pressured cash flows are fueling doubts over when these massive outlays will pay off.<\/p>\n
Oracle said late on Wednesday that it expected capital expenditures of up to $95 billion in fiscal 2027, with plans to raise nearly $40 billion through a combination of debt and equity financing in 2027.<\/p>\n
It has spent $55.66 billion in fiscal 2026, surpassing its $50 billion target, following a February announcement that it aimed to raise $50 billion through debt and equity sales.<\/p>\n
\u201cUnlike the so-called hyperscalers…, Oracle was not sitting on a pile of cash or generating huge amounts of cash flow heading into this spending cycle,\u201d said Russ Mould, investment director at AJ Bell.<\/p>\n
\u201cThis puts it more at the mercy of markets when it comes to funding any investment, and investors seem to be balking at plans to raise a further $40 billion.\u201d<\/p>\n
However, analysts at J.P. Morgan see this as a necessary trade-off to fuel stronger long-term revenue growth.<\/p>\n
The brokerage said steady demand should support investor sentiment, provided Oracle\u2019s cloud business keeps growing faster than those of major hyperscalers.<\/p>\n
J.P. Morgan, however, pointed to some execution risks, including scaling data centres, sustaining bookings and managing its rising debt load.<\/p>\n
Morgan Stanley expects AI-related global debt issuance to more than double to nearly $570 billion in 2026, with hyperscaler spending set to exceed $1 trillion by 2027.<\/p>\n
Underscoring this borrowing trend, Amazon recently secured a $17.5 billion loan from a lender group including Citibank to fund its infrastructure expansion.<\/p>\n
Oracle stock trades at 24.56 times its forward earnings estimates, compared with Microsoft\u2019s 20.47 multiple and Amazon\u2019s 25.19.<\/p>\n
Reporting by Kanishka Ajmera in Bengaluru; Editing by Anil D\u2019Silva, Reuters<\/p>\n
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