Oracle’s disappointing results have knocked more than $70bn off the value of software and data company co-founded by Trump ally Larry Ellison, adding to fears of a bubble in AI-related stocks.
Shares in the company fell by 11.5% overnight after it reported a lower-than-expected 14% rise in revenues to $16bn (£12bn) in the latest quarter while revealing it was boosting its AI spending by about $15bn.
The business posted weaker-than-expected quarterly revenues for the three months to the end of November, as sales at its cloud computing business grew at a slower pace than forecast at 34%.
Investors were also disappointed by a slower than expected 68% growth in revenues from its infrastructure business.
At the same time, investors were spooked by Oracle raising forecasts for investment in AI. It expects capital expenditure to jump by 40% to $50bn, with the bulk of the increase aimed at building datacentres.
The company is already managing a growing debt pile, with Oracle’s long-term debt having surged 25% over the past 12 months to $99.9bn.
“Frankly, the report was not dramatically bad, but it came to confirm concerns around heavy AI spending, financed by debt, with an unknown timeline for revenue generation,” Ipek Ozkardeskaya, a senior analyst at Swissquote, said.
Continued optimism about the potential for AI technology has led to a leap in company valuations in recent months, but there has been a growing spate of warnings from policymakers and business leaders who say stock market valuations could tumble if investors ended up being disappointed by the progress or adoption of AI technology.
Oracle became an important tech player creating software for Fortune 500 firms around the world, but more recently found strength in cloud computing, having become the fastest-growing competitor to Amazon, Microsoft and Google. The surge in AI has also been a boon to the company, which has entered lucrative deals with the likes of OpenAI, the maker of ChatGPT.
However, there are also growing concerns about how reliant companies are becoming on each other’s financing within the AI ecosystem. Oracle said overnight that its measure of revenue from customer contracts rose by 440% over the past year, but analysts were wary when it emerged that the contracts were driven by new commitments from Meta and Amazon.
“Although these are two solid customers, it will not placate fears that big tech’s AI investments are becoming circular, which leaves it vulnerable to a loss of investor confidence,” Kathleen Brooks, a research director at XTB, said.
“Overall, strong contract growth was not enough to placate fears about AI and the huge amount of [capital expenditure] spending required by companies to build AI infrastructure.”
Other AI and tech-related stocks also slid in after-hours trading after the Oracle results. Nvidia’s share price fell by 1.3%, while Google owner Alphabet fell by 0.3%. In Japan, AI investor SoftBank’s shares fell by 7.7% on Thursday.
