Oracle drops on disappointing cloud sales, more AI spending

Core Viewpoint - Oracle Corp. shares dropped 11% following a report of increased spending on AI data centers and equipment, with cloud revenue growth taking longer than investors anticipated [1][4]. Financial Performance - Fiscal second-quarter cloud sales rose 34% to $7.98 billion, while infrastructure revenue increased 68% to $4.08 billion, both slightly below analysts' expectations [1][8]. - Total revenue for the quarter grew 14% to $16.1 billion, with cloud software applications rising 11% to $3.9 billion [8]. - Earnings, excluding certain items, were $2.26 per share, bolstered by a $2.7 billion pretax gain from the sale of Oracle's stake in Ampere Computing [9]. Capital Expenditures and Debt - Capital expenditures reached approximately $12 billion in the quarter, up from $8.5 billion in the previous period, exceeding analysts' expectations of $8.25 billion [4]. - Oracle anticipates capital expenditures will total about $50 billion for the fiscal year ending in May 2026, a $15 billion increase from prior forecasts [4]. - The company has accumulated around $106 billion in debt, with a negative free cash flow of $10 billion for the quarter [5]. Market Position and Strategy - Oracle is expanding its data center capabilities to support AI initiatives for clients like OpenAI, TikTok, and Meta Platforms [2][3]. - The remaining performance obligation, a measure of future revenue from bookings, surged over fivefold to $523 billion [3]. - The company aims to maintain its investment-grade debt rating despite increased scrutiny over its debt-fueled expansion [5]. Investor Sentiment - Investor concerns are growing regarding the pace at which Oracle can convert its infrastructure spending into revenue, particularly in light of the competitive landscape for AI services [4][7]. - The stock has lost about one-third of its value since September 10, reflecting waning investor enthusiasm [6].