Oracle shares tumble as AI spending and weak forecasts ignite market jitters

The cost of insuring Oracle debt against default jumped to its highest level in at least five years

Oracle shares plunged 13% on Thursday, triggering a broader selloff in the tech sector as the software giant's swelling AI-related expenses and softer-than-anticipated revenue outlook intensified fears of a deepening AI bubble.

The Texas-based cloud and database powerhouse reported quarterly revenue of $16.06 billion, falling short of the $16.21 billion expected by analysts, according to LSEG data.

The miss came despite booming demand for the company's AI infrastructure services, which have been at the centre of Oracle's aggressive expansion strategy.

The company revealed that its planned spending will rise by an additional $15 billion beyond earlier estimates, an escalation that deepened concerns over whether tech giants' unprecedented bets on AI can generate short-term returns.

Oracle has been a frequent subject of market speculation since its $18 billion jumbo bond sale in September, one of the largest technology debt issuances on record.

The raise helped fund its AI buildout, including an in-demand deal with OpenAI, which agreed in September to purchase a $300 billion in computing power from Oracle over five years.

Following the announcement, Oracle chairman and CTO Larry Ellison briefly became the world's richest individual.

The company is rapidly scaling out infrastructure to compete with Amazon, Google and Microsoft for AI cloud contracts.

Still, investors are questioning whether Oracle needs such an enormous debt load to fuel expansion.

Citi analyst Tyler Radke estimates Oracle will raise $20-30 billion in debt annually for the next three years, supplemented by billions in construction loans tied to new datacentres in New Mexico and Wisconsin.

Credit markets flash warning signs

One of the sharpest reactions came from the credit market: the cost of insuring Oracle debt against default jumped to its highest level in at least five years.

The company's five-year credit default swaps (CDS) rose nearly 12 basis points to 139 bps, according to S&P Global Market Intelligence, levels not seen since September 2020, as per LSEG data.

Adding to investor unease, Oracle's free cash flow for the November quarter came in negative by about $10 billion, far worse than the negative $5.2 billion projected by StreetAccount.

Free cash flow is being closely watched by analysts as concerns grow over the AI-fuelled leverage cycle sweeping across tech.

Despite swelling expenditures, Oracle reaffirmed its commitment to maintaining an investment-grade credit rating.

Oracle now expects $50 billion in full-year capital expenditures, up sharply from $35 billion in September and more than double the $21.2 billion spent in fiscal 2025.

AI bubble warning?

The results and spending outlook revived debate over whether AI enthusiasm has pushed tech valuations into dangerously inflated territory.

Speaking on the BBC's Today programme, Colleen McHugh, consultant to investment platform Wealthify, said the market reaction was predictable given the perfection-priced nature of tech stocks.

"Many of these tech stocks are priced for absolute perfection, and when there's a revenue miss - which was a small revenue miss, to be fair, by Oracle yesterday - they do get penalised."

Other analysts, however, called Wall Street's negative response misguided.

Wedbush Securities described Oracle's AI backlog as a "high-class problem", arguing that the company's strong demand signals reflect a "healthy and robust AI revolution demand story."

Cory Johnson, chief market strategist at Epistrophy Capital Research, was even more upbeat: "This was nothing but a great quarter for Oracle. Revenue growth of 14% is accelerating."

Johnson noted that Oracle has signed $385 billion in contracts over six months, attracting blue-chip clients such as Meta and Nvidia.

"But AI sentiment is so bad right now, that's seen as a bad thing for Oracle," he added.