Oracle Corporation (NYSE: ORCL) saw its shares decline sharply in after-hours trading on Wednesday, as the market weighed the costs of its ambitious artificial intelligence infrastructure expansion against a backdrop of record revenue and a soaring cloud backlog. The stock, which closed at $201.26, fell 8.9% after the company outlined plans to raise approximately $40 billion through a combination of debt and equity to fund a massive buildout of AI data centers.
Record Revenue and Cloud Growth
Oracle reported a solid fiscal fourth quarter, with revenue rising 21% year-over-year to $19.2 billion. Total cloud revenue surged 47% to $9.9 billion, driven by a 93% jump in Oracle Cloud Infrastructure (OCI) revenue to $5.8 billion. Cloud applications (SaaS) grew 10% to $4.1 billion. The company's remaining performance obligations (RPO), a measure of contracted future revenue, swelled by $85 billion sequentially to a record $638 billion, signaling robust demand for its cloud services.
Investor Concerns Over Capital Spending
Despite the strong top-line performance, investor sentiment soured as the focus shifted to the hefty price tag of Oracle's AI data center push. Reuters reported that Oracle is targeting as much as $95 billion in capital spending for fiscal 2027, with $20 billion to $25 billion expected to be reimbursed by customers. To bridge the gap, Oracle plans to raise about $40 billion next year, including a previously announced $20 billion at-the-market equity plan.
The financing concerns were amplified by Oracle's free cash flow, which was negative $23.7 billion for fiscal 2026 due to heavy upfront investments in cloud infrastructure. This has intensified questions about whether the surge in AI demand will translate into sustainable profitability. eMarketer analyst Jacob Bourne noted, "The demand is real, but the funding question is getting harder."
Mitigating Factors and Customer Commitments
Oracle sought to allay some of these worries by highlighting that its largest AI customers are sharing the cost burden. The company disclosed that AI contracts involving prepaid or customer-supplied hardware have reached $75 billion, effectively reducing the amount of capital Oracle needs to raise for its data center buildout. Additionally, OpenAI announced on Wednesday that it will allow Oracle customers to use certain Universal Credits to access OpenAI models via OCI in the coming weeks, underscoring the deepening partnership between the two firms.
Shifting Revenue Mix and Outlook
Software revenue dipped 2% to $6.8 billion as customers continue to migrate from on-premise software to the cloud. While this shift is central to Oracle's long-term strategy, it is altering the earnings composition, with cloud infrastructure requiring significantly more spending on chips, power, land, leases, and networking. Oracle remains bullish on the near term, guiding for fiscal first-quarter 2027 revenue growth of 27% to 29% and cloud revenue growth of 58% to 64%. The company also raised its full-year non-GAAP earnings outlook to $8.05 per share.
Risks and Conversion Challenges
Oracle faces several risks, including the possibility that its AI expansion could outpace cash generation. Delays in data center projects, GPU shortages, rising costs, power constraints, slower customer adoption, share dilution, or higher debt costs could all impact returns. In its own guidance, Oracle cites data center capacity, technology sourcing, cyber threats, market conditions, and regulatory changes as potential headwinds. A key test will be how quickly the company can convert its $638 billion backlog into revenue; Oracle projects that 12% of its RPO, or roughly $76.56 billion, will be recognized in the next year. Each update on this conversion rate, along with any signals on fiscal 2027 capital spending, will be as closely watched as headline cloud growth figures.
