Oracle's disappointing financial results wiped the value of the software and data company co-founded by Trump ally Larry Ellison by more than $70 billion, raising fears of a bubble in AI stocks.
The company's stock price fell 11.5% overnight after the company reported a $16 billion increase in revenue for its latest quarter, 14% less than expected, while revealing it was increasing AI spending by about $15 billion.
Quarterly revenue for the three months to the end of November was lower than expected, as revenue from its cloud computing business grew at a slower pace than the 34% growth expected.
Investors were also disappointed that sales growth in the infrastructure business was 68% slower than expected.
At the same time, investors were spooked when Oracle raised its AI investment forecast. It expects capital spending to rise 40% to $50 billion, with most of the increase going toward building data centers.
The company is already managing a growing mountain of debt, with Oracle's long-term debt jumping 25% in the past 12 months to $99.9 billion.
“Frankly, the report wasn't dramatically bad, but it confirms concerns about heavy AI spending that is debt-funded with an unclear timeline for revenue generation,” said Ipek Ozkardeskaya, senior analyst at Swissquote.
Continuing optimism about the potential of AI technology in recent months has led to significant increases in company valuations, despite repeated warnings from policymakers and business leaders that stock market valuations could fall if investors are disappointed with the progress and adoption of AI technology.
Oracle has become an important technology company creating software for Fortune 500 companies around the world, but more recently it has found strength in cloud computing, making it a fast-growing competitor to Amazon, Microsoft, and Google. The proliferation of AI has also been a boon for the company, which has lucrative deals with companies such as OpenAI, maker of ChatGPT.
However, there is also growing concern about how companies within the AI ecosystem are becoming dependent on each other's funding. Overnight, Oracle announced that revenue from customer contracts had increased 440% over the past year, but analysts became cautious after it was revealed that the contracts were driven by new deals from Meta and Amazon.
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“While these two companies are solid customers, it doesn't alleviate concerns that the big tech companies' AI investments are cyclical and vulnerable to loss of investor confidence,” said Kathleen Brooks, research director at XTB.
“Overall, strong contract growth was not enough to allay concerns about AI and the sheer volume of services. [capital expenditure] Spending required by companies to build AI infrastructure. ”
Other AI and tech stocks also fell in after-hours trading following Oracle's results. Nvidia's stock fell 1.3%, while Google's Alphabet fell 0.3%. In Japan, AI investor SoftBank shares fell 7.7% on Thursday.
