Oracle's underwhelming latest earnings have slashed over $70bn from the value of the software and data giant co-founded by billionaire Larry Ellison, heightening growing fears of a speculative bubble in AI-related stocks.
Significant Stock Fall Comes After Revenue Miss
Shares in the company tumbled by over 11 percent overnight after it posted a disappointing fourteen percent increase in sales to $sixteen billion dollars in the previous quarter, as it simultaneously announced plans to increase its artificial intelligence investment by around $15 billion.
The business recorded disappointing three-month sales for the period ending in November, with revenue growth at its core cloud computing division growing at a slower pace than forecast, at 34%.
Investor Jitters Over Spending and Debt
Markets were also disappointed by a more moderate 68 percent increase in income from its infrastructure business.
At the same time, the market were alarmed by the firm's increased forecasts for spending on artificial intelligence. It now expects capital expenditure to jump by 40% to $50 billion, with the vast majority of the increase allocated for expanding server farms.
This substantial investment strategy is set against a growing debt pile, with Oracle's long-term debt having increased by 25 percent over the past year to reach $99.9 billion.
"Frankly, the report was not catastrophic, but it served to confirm fears around heavy AI spending, financed by debt, with an unknown timeline for revenue generation," said a senior analyst.
Wider Market Repercussions and Industry Risks
Sustained exuberance about the promise of AI technology has led to a sharp rise in stock prices in recent months, but there has been a growing spate of cautions from regulators and executives who say stock market valuations could plummet if investors become let down by the development or commercial uptake of AI solutions.
While Oracle has become an important tech player developing software for major firms worldwide and has more recently grown rapidly in the cloud sector, there are growing questions about how dependent tech giants are growing on circular funding within the AI ecosystem.
Oracle said that its metric of revenue from customer contracts rose by four hundred and forty percent over the past year. However, analysts were skeptical when it emerged that these contracts were driven by large deals from other tech giants like Meta and Amazon.
"Although these are two solid customers, it will not placate fears that big tech's AI investments are self-referential, which leaves it susceptible to a loss of investor confidence," observed a research director.
"In summary, robust backlog increase was not enough to alleviate fears about AI and the huge amount of investment spending required by firms to build AI capacity."
Broader Sell-Off in AI-Related Shares
Other AI and tech-related stocks also slid in after-hours trading following the Oracle results. Key performers included:
- Nvidia: Share price declined by 1.3%.
- Alphabet (Google): Stock declined by 0.3 percent.
- SoftBank: In Japan, the AI investor shares tumbled by 7.7% on Thursday.