Oracle shares fell 11% on Thursday after the company revealed capital expenditures of $12 billion for its fiscal second quarter and raised its full-year spending guidance to $50 billion, a $15 billion increase from its September forecast. The drop wiped roughly $80 billion from Oracle's market value and dragged other AI-related stocks lower.
The numbers that spooked Wall Street
Revenue came in at $16.1 billion, up 14% year-over-year but short of the $16.21 billion analysts expected. Cloud infrastructure revenue grew 68% to $4.08 billion. Sounds good on paper.
But here's the thing: analysts were expecting capex of around $8.25 billion for the quarter. Oracle delivered $12 billion. That's not a beat, that's a budget explosion. And negative free cash flow hit $10 billion for the quarter, with total debt now sitting at roughly $106 billion according to Bloomberg data.
The adjusted earnings per share of $2.26 crushed expectations of $1.64, though that number got a $2.7 billion boost from selling Oracle's stake in chipmaker Ampere to SoftBank. Strip that out and the picture changes.
The debt question nobody wants to answer
Oracle's credit default swap pricing climbed to its highest level since 2009 on Thursday. That's the market betting Oracle's debt is riskier than it's been in 16 years.
Principal Financial Officer Doug Kehring tried to reassure analysts on the earnings call, emphasizing that Oracle doesn't pay for data center leases until facilities are delivered. The company remains committed to its investment-grade debt rating, he said. But free cash flow doesn't lie, and right now it's telling a story of a company burning cash faster than it's generating it.
JP Morgan analyst Mark Murphy put it bluntly: investors keep expecting Oracle's spending to convert to revenue faster than reality allows.
Oracle's cloud business is genuinely growing. Remaining performance obligations, a measure of contracted future revenue, hit $523 billion, up 438% year-over-year. Kehring attributed the surge to new commitments from Meta, Nvidia, and others. That backlog suggests real demand for Oracle's AI infrastructure. Whether Oracle can turn contracts into cash before the debt becomes a problem is the $106 billion question.
The ripple effect
Oracle didn't fall alone. Nvidia dropped nearly 1.5%, Arm and Intel slid more than 3%, and Alphabet lost 2.4%. The Nasdaq fell 0.7% while the Dow managed a 0.5% gain.
The broader selloff reflects growing unease about AI infrastructure economics. Companies across the sector are making massive bets on data center buildouts, but the path from spending to profitability remains murky. Oracle's situation is particularly acute given its debt load and dependence on a handful of large AI customers, including OpenAI.
Chairman Larry Ellison addressed the chip strategy on the call, announcing Oracle would pursue "chip neutrality" by working with multiple suppliers rather than designing its own. Given that Oracle just sold Ampere, this reads less like strategic flexibility and more like an admission that the hardware game wasn't working.
What happens next
Oracle affirmed its full-year revenue guidance of $67 billion and projected third-quarter revenue growth of 19% to 22%, roughly in line with expectations. The company also raised its fiscal 2027 outlook by $4 billion to $89 billion.
For now, Wall Street analysts remain cautiously optimistic. Most maintained buy ratings while cutting price targets. William Blair's Sebastien Naji called Oracle a "show-me story" but argued the company should benefit from the broader AI platform shift.
Oracle's new co-CEOs, Clay Magouyrk and Mike Sicilia, who took over from Safra Catz in September, have their work cut out for them. The next earnings report arrives in March 2026. By then, investors will want evidence that $50 billion in spending is producing something more than impressive backlog numbers.
EDITOR NOTES
- Suggested internal links: Previous coverage of Oracle cloud strategy, OpenAI infrastructure partnerships, broader AI spending analysis
- External sources cited: Bloomberg, Yahoo Finance, CNBC, JP Morgan analyst note, SiliconANGLE
- Verification needed: Confirm exact Ampere sale proceeds and timing; verify JP Morgan analyst name
- Update triggers: Q3 earnings (March 2026), any debt rating changes, major customer announcements
