Key events
Overnight risk sentiment is “subdued after weaker revenue and higher capex requirement from Oracle”, reports Mohit Kumar of investment bank Jefferies.
Introduction: Oracle shares slide as earnings cast doubt over AI profitability
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Fears about the profitability of the AI industry are on the rise again, after results from Oracle failed to impress Wall Street.
Oracle, part of the race to provide huge computing power for AI companies, missed revenue and profit expectations last night. It also reported a jump in spending on AI data centers – an area where it has already been spending (and borrowing) heavily.
Capital expenditure for the 2026 fiscal year is now expected to be $15bn higher than the $35bn Oracle estimated in September, showing that the cost of constructing the infrastructure for the AI revolution is rising fast… before many profits show up.
Oracle also booked a one-off $2.7bn pre-tax gain through the sale of its stake in chip designer Ampere Computing.
Oracle chairman Larry Ellison took time out of reshaping the media industry to explain:
“Oracle sold Ampere because we no longer think it is strategic for us to continue designing, manufacturing and using our own chips in our cloud datacenters.
We are now committed to a policy of chip neutrality where we work closely with all our CPU and GPU suppliers. Of course, we will continue to buy the latest GPUs from NVIDIA, but we need to be prepared and able to deploy whatever chips our customers want to buy. There are going to be a lot of changes in AI technology over the next few years and we must remain agile in response to those changes.”
For the last quarter, Oracle reported total revenue of $16.06bn, below with analysts’ average estimate of $16.21bn.
And looking ahead, Oracle said that adjusted profit for the current fiscal third quarter would be $1.64 to $1.68 per share, below analyst estimates of $1.72 per share, according to LSEG data. Oracle’s third-quarter revenue growth forecast of between 16% and 18% also missed analyst estimates of 19.4% growth to $16.87 billion,
The initial response was brutal, with Oracle’s shares sliding by 11.5% in after hours trading on Wall Street.
Ipek Ozkardeskaya, senior analyst at Swissquote, explains why:
The company continued to burn cash last quarter: its free cash flow reached a negative $10 billion. To make matters worse, the company said that it expects capex to reach about $50 billion in the fiscal year ending May 2026 – $15 billion more than its September forecast – and investments at Oracle are financed by debt: overall, the company has about $106 billion in debt.
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, sending Oracle…
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