The tech firm's disappointing latest earnings have wiped more than $70 billion from the worth of the enterprise software company established by Trump ally Larry Ellison, intensifying escalating fears of a speculative bubble in AI-related stocks.
Significant Stock Fall Follows Sales Shortfall
Stock in the firm plunged by over 11 percent in after-hours trading after it reported a lower-than-expected 14 percent growth in revenues to $16 billion in the most recent quarter, while simultaneously disclosed plans to increase its AI spending by around $15 billion.
The enterprise reported weaker-than-expected quarterly revenues for the quarter ending in November, with sales at its key cloud computing business growing at a more modest rate than forecast, at 34%.
Investor Concerns Over Investment and Leverage
Investors were further disappointed by a slower than expected 68 percent growth in income from its infrastructure business.
At the same time, the market were alarmed by the company's increased forecasts for AI investment. It now projects capital expenditure to leap by 40% to $50 billion, with the bulk of the additional spending allocated for expanding data centres.
This aggressive spending plan is set against a ballooning debt load, with Oracle's long-term debt having increased by 25% over the past year to reach $nearly one hundred billion dollars.
"Frankly, the earnings release was not catastrophic, but it served to validate concerns around heavy AI spending, financed by debt, with an unclear timeline for profitability," commented a senior analyst.
Wider Market Implications and Industry Risks
Sustained exuberance about the promise of AI technology has driven a leap in company valuations in recent months, but there has been a growing spate of cautions from regulators and business leaders who warn stock market valuations could plummet if the market ended up being let down by the progress or adoption of AI solutions.
While Oracle has become an important tech player developing software for major corporations worldwide and has in recent years grown rapidly in the cloud sector, analysts point to growing concerns about how dependent companies are growing on circular funding within the artificial intelligence industry.
Oracle reported that its measure of revenue from customer contracts soared by 440% over the last twelve months. However, analysts were skeptical when it emerged that these commitments were driven by new commitments from other tech giants like Meta and Amazon.
"Although these are two solid customers, it will not soothe concerns that big tech's AI investments are self-referential, which makes the sector susceptible to a erosion of market faith," commented a research director.
"In summary, strong backlog increase was not enough to placate anxiety about AI and the massive amount of capital expenditure required by firms to construct AI capacity."
Broader Sell-Off in Tech Shares
Other AI and tech-related stocks also slid in extended trading following the Oracle report. Key movers included:
- Nvidia: Stock declined by 1.3 percent.
- Alphabet (Google): Stock declined by 0.3%.
- SoftBank: In Japan, the investment firm's shares plunged by 7.7% on Thursday.
