Oracle shares fall 5.34% as concerns about AI spending returns
Key Facts
Oracle shares fell 5.34% on October 30, according to a TradingKey report, as technology stocks declined and investors’ concerns about the cost of building AI infrastructure resurfaced. The software and IT services sector fell 1.06% in the session, while Microsoft shares dropped 1.60%. TradingKey attributed the move in Oracle shares to profit-taking after a rally following the investor day, alongside broader market weakness. Oracle shares had closed at $139.56 on October 29, up from $126.16 on October 23, according to EL7 data. Those prices are for prior sessions and do not represent the closing price on the day of the decline reported by TradingKey.
The decline followed a jump of more than 12% in Oracle shares on October 28, after the company issued its forecasts at its investor day, according to Reuters. Shares of other cloud companies also rose at the time, making the subsequent decline a test of how durable investor confidence in the company’s plans would be. Across the market, Reuters linked Friday’s technology stock declines to concerns that large and growing AI spending may not generate sufficient returns. By 12:30 p.m. Eastern time on October 30, the S&P 500 was down 1.6% and the Nasdaq Composite 2.6%, while the Dow Jones had lost 359 points, or 0.7%, according to the Associated Press. Portfolio manager Joe Tigay said the AI trade was moving from “a phase of hopes and expectations to a phase of requiring companies to show results.”
Oracle’s plan puts peak capital spending in fiscal 2027 and 2028, with a decline expected in fiscal 2029. The company said it is targeting at least $30 billion in positive free cash flow in 2029 and expects cash flow to turn positive in the second half of fiscal 2028. This timeline leaves a waiting period between peak spending and the targeted shift to available cash, as investors monitor the company’s ability to finance its expansion. To reduce upfront cash needs during the transition, Oracle said supplier financing, customer-provided equipment and customer prepayments would help ease them. These are financing and operating measures management cited as part of its plan to meet infrastructure needs.
On financing sources, Oracle pledged to cap additional financing raised for its investment cycle between fiscal 2027 and 2030 at $20 billion, excluding refinancing of existing debt. It said the amount is expected to be split evenly between $10 billion in equity and $10 billion in gross debt. These limits come as figures for August 31 showed $125.34 billion in bonds due and other borrowings, compared with about $36.37 billion in cash and equivalents, according to Reuters. The OpenAI partnership also added hundreds of billions of dollars to Oracle’s cloud backlog, Reuters reported, but building the data centers needed to fulfill the contracts has led the company to rely heavily on debt and share sales. Reuters described the company as a focal point for concerns over the cost of AI infrastructure, citing its heavy reliance on one customer and its lack of a cloud revenue base comparable to Microsoft and Amazon.
Oracle reaffirmed its fiscal 2027 forecast for revenue of at least $90 billion and adjusted earnings per share of $8.10. For fiscal 2030, it also set a target of revenue exceeding $225 billion, a non-GAAP operating margin above 40%, and earnings per share on the same basis exceeding $21. These figures remain future targets announced by management, as investor questions center on returns from the massive capital spending. Emarketer analyst Jacob Bourne said the forecasts were “ambitious and far from guaranteed,” but showed the company understood investors’ concerns and offered an optimistic path to address them. At the market level, Reuters said a potential initial public offering by Anthropic could be the next test of investor sentiment toward AI spending.