Oracle's disappointing financial performance have erased more than $70 billion from the value of the enterprise software giant co-founded by Trump ally Larry Ellison, adding to growing fears of a speculative bubble in AI-related stocks.
Significant Share Price Decline Follows Revenue Miss
Shares in the company tumbled by 11.5% in after-hours trading after it posted a lower-than-expected 14% increase in revenues to $16 billion in the latest quarter, as it simultaneously revealed plans to ramp up its AI spending by about $15 billion.
The enterprise reported softer-than-forecast quarterly revenues for the period ending in November, with sales at its core cloud computing division expanding at a slower pace than projected, at thirty-four percent.
Market Jitters Over Spending and Debt
Markets were also disappointed by a slower than expected 68 percent increase in revenues from its cloud infrastructure unit.
At the same time, investors were spooked by the firm's elevated forecasts for spending on artificial intelligence. It now anticipates capex to surge by forty percent to $50bn, with the bulk of the additional spending aimed at building data centres.
This substantial investment strategy is set against a growing debt load, with Oracle's long-term debt having increased by twenty-five percent over the past year to reach $99.9bn.
"Frankly, the report was not dramatically bad, but it came to validate fears around heavy AI spending, financed by debt, with an unclear timeline for revenue generation," said a market analyst.
Wider Market Implications and Industry Risks
Continued exuberance about the capabilities of AI technology has fueled a surge in market capitalizations in the past year, but there has been a growing spate of cautions from policymakers and executives who say equity prices could tumble if the market become let down by the progress or commercial uptake of AI technology.
While Oracle has established itself as a key tech player creating enterprise solutions for large corporations worldwide and has more recently grown rapidly in cloud computing, there are increasing concerns about how reliant tech giants are becoming on circular funding within the AI ecosystem.
Oracle reported that its measure of revenue from customer contracts jumped by 440% over the last twelve months. However, market watchers were skeptical when it emerged that these contracts were propelled by new commitments from other tech giants like Meta and Amazon.
"Although these are high-quality customers, it will not placate fears that the tech sector's AI investments are self-referential, which leaves it susceptible to a loss of investor confidence," observed a research director.
"Overall, robust backlog increase was not enough to calm fears about AI and the enormous amount of investment spending needed 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 report. Key movers included:
- Nvidia: Stock declined by 1.3%.
- Alphabet (Google): Shares dropped by 0.3 percent.
- SoftBank: In Japan, the AI investor shares plunged by 7.7 percent on Thursday.
