The tech firm's lackluster latest earnings have erased more than $70bn from the value of the enterprise software giant co-founded by Trump ally Larry Ellison, intensifying escalating apprehensions of a speculative bubble in artificial intelligence stocks.
Steep Stock Fall Follows Sales Miss
Stock in the company tumbled by 11.5% overnight after it posted a lower-than-expected fourteen percent rise in sales to $16bn in the most recent quarter, as it simultaneously disclosed plans to boost its artificial intelligence investment by about $15bn.
The enterprise recorded disappointing quarterly revenues for the quarter ending in November, with revenue growth at its core cloud computing division expanding at a more modest rate than projected, at 34%.
Market Concerns Over Spending and Leverage
Investors were also disappointed by a slower than expected 68 percent growth in income from its cloud infrastructure unit.
At the same time, the market were unnerved by the firm's raised projections for AI investment. It now expects capex to surge by 40% to $50 billion, with the vast majority of the additional spending aimed at expanding server farms.
This substantial investment strategy comes amid a increasing debt pile, with Oracle's long-term debt having increased by 25% over the past year to reach $99.9bn.
"Frankly, the earnings release was not catastrophic, but it came to confirm worries around substantial AI spending, funded through debt, with an unknown timeframe for revenue generation," said a market analyst.
Wider Market Implications and Industry Risks
Continued optimism about the promise of AI technology has led to a surge in stock prices in the past year, but there has been a increasing chorus of warnings from policymakers and business leaders who say equity prices could tumble if the market ended up being let down by the progress or adoption of AI solutions.
While Oracle has established itself as a key tech player creating software for major firms worldwide and has in recent years grown rapidly in the cloud sector, there are growing questions about how dependent tech giants are becoming on mutual investment within the AI ecosystem.
Oracle disclosed that its measure of revenue from customer contracts rose by 440% over the past year. However, market watchers were cautious when it was revealed that these contracts were propelled by large deals from other tech giants like Meta and Amazon.
"While these are two solid customers, it will not soothe fears that big tech's AI investments are self-referential, which makes the sector vulnerable to a erosion of investor confidence," stated a research director.
"Overall, robust contract growth was not enough to calm fears about AI and the enormous amount of capital expenditure needed by firms to develop AI capacity."
Broader Sell-Off in AI-Related Stocks
Other technology stocks also slid in extended trading following the Oracle announcement. Key movers included:
- Nvidia: Share price fell by 1.3 percent.
- Alphabet (Google): Shares declined by 0.3%.
- SoftBank: In Japan, the investment firm's shares fell by 7.7% on Thursday.
