Here's what just sent Oracle's stock soaring

By Emily Bary and Britney Nguyen

The company's new financial targets paint a rosier picture of its AI economics than investors had feared

Oracle's stock was rising 12% on Wednesday.

It's been a busy week of Oracle announcements, but one stands out most of all to investors.

The company disclosed Wednesday afternoon that it expects to generate positive free cash flow during the second half of its next fiscal year. That corresponds to the six-month period ending in May 2028.

The target is significant because investors have been worried about the financial implications of Oracle's (ORCL) hefty artificial-intelligence spending. The company has been borrowing money to finance a build-out of cloud capacity that will help it meet its contracts with OpenAI and others down the road. The new disclosure suggests that Oracle is managing its AI economics better than Wall Street had feared.

Free cash flow refers to the money a company has left after it covers operating costs and equipment purchases. Analysts tracked by FactSet expected Oracle to post more than $13 billion in negative free cash flow across the final two quarters of fiscal 2028.

Oracle shares popped 10.7% on Wednesday following the new forecast, which was made in conjunction with the company's investor day. The surge led Oracle's stock to its largest percent increase since May, according to Dow Jones Market Data.

The company provided other targets as well, including a projection for upwards of $30 billion in free cash flow during the fiscal year that ends in May 2029. Only a couple of analysts forecast metrics that far out, but their average projection had been for negative free cash flow during that period.

Oracle's expectations for free cash flow to turn positive in fiscal 2028 "doesn't mean it'll be a good stock," but it did offer something "very straight to the point" to investors on one of the market's biggest questions, Austin Filiere, a portfolio manager at Laffer Tengler Investments, told MarketWatch. The AI trade has been rattled by climbing data-center spending and rising debt levels.

Many investors have likely been concerned that Oracle is "underwater on their contracts," Filiere said in emailed comments, noting that as costs have risen, its remaining performance obligation contracts, which represent future expected revenue, have not risen by the same magnitude.

Oracle not only reaffirmed its long-term guidance for 35% growth but also reassured investors that it will take $20 billion of additional capital to meet that target - "far less than investors expected," D.A. Davidson managing director Gil Luria told MarketWatch in emailed comments.

Oracle further announced that it was "committed to limiting additional funding to be raised in the capital markets" through fiscal 2030, which ends in May of that year. The company has a $20 billion financing target across that period, split evenly between debt and stock offerings. The forecast excludes the $20 billion raised through an equity offering earlier this year.

"Vendor financing, customer-provided hardware and customer prepayments are expected to reduce up-front cash requirements through the transition to positive free cash flow," Oracle said in a release.

The financial announcements follow more product-related news from earlier in the week. Oracle said Tuesday that it will be the first major cloud provider to offer Google's (GOOGL) (GOOG) custom chips - besides Google itself.

Google has been working on its tensor processing units for more than a decade and uses them to run things including its search-engine algorithms and its Gemini AI models.

Offering Google's TPUs will give customers more flexibility on which hardware works best with their AI workloads, Oracle said. The hardware offers scalability and improved economics - a major focus for companies that are looking to keep costs for computing power in check.

Oracle said it will support TPU deployments with power, cooling and networking. Google's custom silicon will be available next year, Oracle added, and deployments will ramp up over several years.

-Emily Bary -Britney Nguyen

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-28-26 1638ET