Oracle's stock slides after earnings, as the steep price of AI spooks investors

By Christine Ji

Oracle blows past earnings expectations and grows its contract pipeline to $638 billion, but Wall Street is concerned about its rising AI costs

Oracle reported record revenue of $19.18 billion, but ended the year with $23.69 billion in negative free cash flow.

A record earnings beat wasn't enough for Oracle to satisfy investors, who are looking for more definitive proof of a successful artificial-intelligence business transformation.

Shares of Oracle (ORCL) fell 10% in Wednesday's after-hours trading following the company's latest results, which showed strong revenue growth but also higher-than-expected capital expenditures.

The database giant's fiscal fourth-quarter revenue rose 21% year over year to $19.18 billion, surpassing the $19.10 billion FactSet consensus estimate. Oracle reported adjusted earnings per share of $2.11, beating expectations for $1.96. The company cited strong revenue growth and "operating efficiency actions" during the quarter as the reason behind its record $8.6 billion in non-GAAP operating income.

However, capital expenditures for the entirety of fiscal 2026 came out to $55.66 billion, topping the $50.85 billion expected by Wall Street. The company is spending aggressively to monetize the massive demand for AI computing. The company ended the fiscal year with $23.69 billion in negative free cash flow due to heavy spending on AI infrastructure. Oracle expects to raise approximately $40 billion in fiscal 2027 to meet its capital requirements, including a previously announced $20 billion at-the-market equity issuance. Oracle confirmed that it doesn't expect to raise any more debt for the rest of 2026.

Oracle also said that software revenue fell 2% from a year before to hit $6.8 billion in the latest quarter.

See more: Oracle's stock rises as company reportedly begins thousands of job cuts

Oracle cleared Wall Street's bar on remaining performance obligations, or the value of signed contracts not yet converted into revenue. Oracle added $85 billion in RPO in the fourth quarter, resulting in total RPO of $638 billion. Wall Street had anticipated $601 billion. On the earnings call, CFO Hilary Maxson said that the company expects 12% of the RPO balance to be recognized in the next 12 months, and another 34% in the next 13 to 36 months.

Oracle Cloud Infrastructure, the company's cloud-computing business, grew 93% year over year and generated $5.8 billion in revenue last quarter. But investors are concerned that this business line is fundamentally lower-margin than Oracle's traditional software business.

Co-CEO Clay Magouyrk addressed this concern on the earnings call, saying that the majority of RPO adds last quarter were prepaid or part of the company's bring-your-own-hardware policy. "This increases our combination of bring-your-own-hardware or prepaid customer contracts to $75 billion, with those contracts having no degradation in margin compared to our other contracts," Magouyrk said.

The company anticipates growing its margins and return on investment as the infrastructure business matures. Oracle expects a return on invested capital in the high-20s percentage range once OCI hits a steady state, Maxson said.

Shares of Oracle have gained 37% since the company's previous earnings report, when the cloud and database giant reported revenue- and earnings-growth rates in excess of 20%. A wave of enthusiasm for the AI computing and hardware trade has swept Oracle's stock higher since. The stock has shaken off the broader software selloff to break into positive territory on a year-to-date basis.

Oracle expects revenue to grow from 27% to 29% in the first quarter of fiscal 2027, meeting Wall Street's 28% growth estimate at the midpoint. Total cloud revenue is expected to grow between 58% and 64%. The company guided for non-GAAP earnings per share of $1.72 to $1.76, also exceeding Wall Street's estimates for $1.68.

For the full year, Oracle reaffirmed its $90 billion revenue target. The company plans on spending up to $95 billion in capex over the same time period, with net cash outlays of $70 billion. The remaining $20 billion to $25 billion will come from customer prepayments and timing differences, Oracle said on the earnings call.

Read: Why Oracle's stock may be a 'go-to' AI winner that investors are overlooking

-Christine Ji

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06-10-26 1917ET