Key facts
- Oracle shares fell 12% on Thursday, marking their largest one-day drop since January last year.
- The company forecasts fiscal 2027 capital expenditures of up to $95 billion.
- Oracle expects net capital expenditure of around $70 billion in the current fiscal year.
- Oracle plans to raise an additional $40 billion in debt and equity financing.
- Oracle's free cash flow deficit widened to $23.7 billion in fiscal year 2026.
Oracle shares tumbled 12% on Thursday, marking their largest one-day drop since January last year and wiping approximately $72 billion from the company's market value. The decline was driven by investor concerns over escalating debt and substantial spending on AI infrastructure, despite the company beating earnings estimates.
Oracle is accelerating its data center buildout to compete more forcefully with rivals like Amazon and Microsoft, securing large deals with OpenAI and Meta. However, this push requires significant cash burn and debt issuance, as Oracle lacks the large cash flows of its competitors. Citizens JMP Securities noted that the accelerated buildout is pressuring near-term gross margins and raising questions about capital expenditures, funding, and returns.
The company expects net capital expenditure of around $70 billion in its current fiscal year for AI data center development. To fund this, Oracle plans to raise an additional $40 billion in debt and equity, following $43 billion in debt and $5 billion in equity raised in the fiscal year ended May. Analysts at Melius Research expressed uncertainty about Oracle's ability to stick to its capex plan if incremental business arises, and noted that competitors are unlikely to slow their own spending.
Oracle's higher-than-expected capital spending for fiscal year 2026 deepened its free cash flow deficit to $23.7 billion, a significant increase from $394 million in fiscal year 2025. The stock drop also weighed on the European IT sector, with shares of SAP falling 4.4% and Capgemini sliding 3.6%.