Oracle's disappointing latest earnings have erased in excess of $70bn from the value of the enterprise software company established by Trump ally Larry Ellison, intensifying mounting fears of a overheated market in AI-related stocks.
Steep Share Price Fall Follows Revenue Miss
Stock in the company fell sharply by 11.5% overnight after it disclosed a lower-than-expected 14 percent increase in revenues to $16 billion in the previous quarter, as it simultaneously announced plans to increase its AI spending by approximately $15bn.
The enterprise reported softer-than-forecast quarterly revenues for the period ending in November, with sales at its core cloud services business expanding at a more modest rate than anticipated, at 34 percent.
Investor Jitters Over Investment and Leverage
Markets were also disappointed by a slower than expected 68% growth in income from its infrastructure business.
Concurrently, the market were spooked by the firm's raised projections for AI investment. It now anticipates capex to surge by 40% to $50bn, with the lion's share of the additional spending aimed at building data centres.
This substantial spending plan comes amid a increasing debt load, with Oracle's corporate debt having increased by 25% over the last twelve months to reach $99.9bn.
"Honestly, the earnings release was not dramatically bad, but it served to validate concerns around substantial AI spending, financed by debt, with an unknown timeframe for returns," said a market analyst.
Broader Market Repercussions and Industry Concerns
Continued optimism about the promise of AI technology has led to a leap in company valuations in recent months, but there has been a increasing chorus of cautions from policymakers and executives who say stock market valuations could plummet if the market become let down by the progress or commercial uptake of AI technology.
While Oracle has become an important technology provider developing enterprise solutions for large corporations worldwide and has more recently found strength in the cloud sector, there are increasing questions about how dependent firms are growing on each other’s financing within the AI ecosystem.
Oracle reported that its measure of contractual revenue soared by 440 percent over the last twelve months. However, analysts were cautious when it emerged that these contracts were propelled by new commitments from major customers like Meta and Amazon.
"Although these are high-quality customers, it will not placate concerns that big tech's AI investments are becoming circular, which leaves it vulnerable to a erosion of investor confidence," observed a research director.
"Overall, robust backlog increase was not enough to placate fears about AI and the massive amount of investment spending needed by companies to build AI infrastructure."
Ripple Effect in Tech Shares
Additional AI and tech-related stocks also slid in extended trading following the Oracle results. Key performers included:
- Nvidia: Share price dropped by 1.3%.
- Alphabet (Google): Stock dropped by 0.3 percent.
- SoftBank: In Japan, the investment firm's shares fell by 7.7 percent on Thursday.
