AI Race Comes at a Price as Oracle Shares Slide Despite Strong Results

Technology and artificial intelligence, or AI, stocks continue to attract intense attention and have shown especially high sensitivity in recent weeks to stretched valuations in the markets. The clearest example over the past 24 hours has been software and cloud giant Oracle.

The company reported its financial results for the fourth quarter of fiscal 2025 last night, and although it beat analysts’ estimates on both the top and bottom lines, the stock is reacting with a sharp drop of about 8% in premarket trading on Wall Street, to about $187. The main reason is the astronomical price tag required to win the AI arms race, and investors’ concern about share dilution and the piling up of heavy debt.

At first glance, Oracle’s report shows phenomenal performance, driven mainly by the accelerated shift of customers from on-premises software to advanced cloud infrastructure. Adjusted earnings per share came in at $2.11, compared with analysts’ forecast of $1.96, an increase of about 20% from a year earlier. Total revenue rose 21% to $19.18 billion, slightly above market consensus of $19.10 billion. Cloud infrastructure revenue jumped 93% to $5.8 billion. The company’s future order backlog surged an unusual 363% to $638 billion, compared with an estimate of $595.6 billion.

According to analysts at Bank of America, more than 50% of Oracle’s current backlog comes from massive contracts with OpenAI. These are transactions in which end customers prepaid for capacity or supplied their own graphics processors, GPUs, to secure allocations of floor space and energy at the company’s server farms.

Oracle management, led by CEO Clay Magouyrk, remained optimistic and even raised forward guidance. Adjusted earnings per share for the next quarter are expected to be $1.72 to $1.76, above analysts’ estimate of $1.68. The company’s revenue forecast for the first fiscal quarter of 2027 calls for growth of 27% to 29%, in line with market expectations. The company reaffirmed its fiscal 2027 revenue target of $90 billion.

Cash burn and a $40 billion fundraising plan. So if the report was so strong, why did the stock fall sharply? As noted, many analysts pointed to Oracle’s rising capital expenditures to expand its AI infrastructure. In fiscal 2026, Oracle’s capital spending jumped 162% to $55.7 billion, well above expectations of $50.8 billion. As a result, the company posted negative free cash flow of $23.7 billion.

To finance this ambition, Oracle unveiled another aggressive capital and debt raising plan. It is expected to raise about $40 billion in fiscal 2027 through a combination of debt and equity, including the sale of $20 billion in shares. This comes after the company already raised $43 billion in debt and $5 billion in equity in 2026.

The market fears that the current debt load, which has already grown to $162 billion, is pushing the company’s financial strength metric into what is described as a “gray area” and a risky zone. In addition, some analysts pointed to a minor miss in Oracle’s cloud revenue, which came in at $9.91 billion versus an estimate of $9.99 billion, as another possible reason for the negative sentiment among investors.

What are analysts saying? Wall Street analysts are divided between an assessment of the long-term potential of Oracle’s AI business and immediate fears of margin erosion and shareholder dilution. Uzi Levi, head of foreign research at Mizrahi Tefahot, explained that, “The report was indeed strong, but the market reacted to the future plans. The sharp decline stemmed from heavy investor concerns about temporary pressure on gross margins due to rapidly rising expansion costs and the massive construction of new data centers, along with the company’s plan to raise about $40 billion in fiscal 2027 to finance these capital investments.”

Gil Luria, an analyst at D.A. Davidson, told CNBC that, “This is the kind of quarter we would characterize as mixed. Oracle’s current backlog is now larger than Microsoft’s, Amazon’s and Google’s combined. They have an AI backlog that needs to be fulfilled that is larger than any of the three big cloud giants.” He added that, “Much of the disagreement in the market now revolves around the capital raise. They will need $40 billion during the fiscal year, but they have remained consistent with their earlier statement that there will be no additional capital raise in the current calendar year.”

It should be noted that Oracle went into the report trading about 20% below its most recent all-time high, set on June 1. Since the start of the year, the stock has posted a positive return of 3%.