Accelerated AI Expenditure Sparks Fiscal Health Concerns at Oracle
Oracle (ORCL.N) on Wednesday forecast capital spending plans for fiscal 2027 above Wall Street estimates, as the cloud computing company said it will also raise more debt in 2027, reflecting the staggering scale of cash burn needed to build out its AI infrastructure.
Its shares fell 8.9% in extended trading, after Oracle said it expects to raise nearly $40 billion through a combination of debt and equity financing in 2027. This includes its previously announced $20 billion at-the-market equity issuance.
Oracle, which has major deals to build data centers for customers such as Meta Platforms (META.O) and OpenAI, is working to position itself as a major rival to cloud leaders such as Amazon.com (AMZN.O) and Microsoft (MSFT.O).
The company said on Wednesday that a massive “Stargate” data center in Texas it is building with OpenAI and others will be more than three-quarters complete within 90 days, and OpenAI said customers can start accessing OpenAI’s cutting-edge coding models on Oracle’s cloud.
“Our pace of delivery continues to accelerate with our (fiscal first quarter of 2027) delivery approaching one gigawatt, nearly the same capacity as we’ve delivered in the previous four quarters combined,” Oracle CEO Clay Magouyrk told analysts on a conference call.
But Oracle is also increasingly spending like those larger rivals, saying on Wednesday it expects capital expenditures of up to $95 billion in fiscal 2027, though it expects repayments from customers for up to $25 billion of that.
The company spent about $55.66 billion in 2026, above its target of $50 billion, amid intense investor scrutiny over its rising debt load. Oracle had said in February it aimed to raise as much as $50 billion this year through a combination of debt and equity sales.
CFO DETAILS SPENDING BREAKDOWN
Oracle CFO Hilary Maxson said on the conference call that Oracle expects $70 billion in capital spending of its own in fiscal 2027, plus another $20 billion to $25 billion that it expects to be repaid for, though Maxson did not give a timeline for how quickly Oracle expects the repayments. Analysts expected $67.66 billion in capital spending for fiscal 2027, according to LSEG data.
Maxson also said the company’s gross margins will “step down” over its just-begun fiscal 2027 as it ramps up data-center projects.
Oracle also said it now has remaining performance obligations, a key measure of future revenue under contract, of $638 billion, above analyst estimates of $592.52 billion, according to data from Visible Alpha.
Maxson for the first time gave a time frame for how soon Oracle expects that contracted revenue to arrive, saying the company expects 12% of it, or $76.56 billion, over the next 12 months, and another 34%, or about $216.92 billion, in the two years after that.\
CAPITAL SPENDING WORRIES PERSIST
But how Oracle will fund the capital spending to earn that revenue remains a top concern for investors, said Jacob Bourne, an analyst at eMarketer.
“The demand is real with cloud infrastructure revenue and backlog growing fast. But the funding question is getting harder, not easier, with capex coming in well above estimates and free cash flow still negative,” he said.
The software industry is also contending with growing investor concerns that AI tools could pull enterprise clients away from traditional software by taking over tasks once done by their products.
Oracle reported total revenue of $19.18 billion for the fourth quarter, compared with analysts’ average estimate of $19.10 billion, according to data compiled by LSEG.
Its adjusted profit of $2.03 per share for the quarter exceeded expectations of $1.96.
Reporting by Juby Babu in Mexico City and Stephen Nellis in San Francisco; Additional reporting by Sriparna Roy and Shivansh Tiwary in Bengaluru; Editing by Arun Koyyur and Matthew Lewis
This article was first reported by Reuters
