Oracle Shares Drop on AI Spending Fears

Oracle shares drop after dour forecast, higher capex
AI-related stocks including Nvidia fall
At least 13 brokerages slash PT on stock following results

Market Reaction and Investor Concerns

Oracle shares sank 13% on Thursday, triggering a wider selloff in technology stocks. The decline followed disappointing forecasts and mounting doubts about how quickly AI investments will generate returns. Investors also sold Oracle bonds, citing concerns about its debt-fueled expansion, while credit-default swaps rose to five-year highs. The company currently carries around $100 billion in debt, intensifying scrutiny of its financial position.

Oracle has spent approximately $10 billion in cash in the first half of its fiscal year on AI infrastructure. If losses persist, the company could shed more than $90 billion in market value. Founder Larry Ellison, who holds about 40% of Oracle, faces a potential $30 billion hit to his net worth. Despite these challenges, executives argue that underinvestment in AI poses a greater risk than overspending.

AI Partnerships and Spending Outlook

Oracle has emerged as a significant player in AI infrastructure through a $300 billion deal with OpenAI. This partnership has tied its fortunes closely to the ChatGPT maker, whose valuation stands at about $500 billion despite ongoing losses. Concerns have grown that Google may be pulling ahead of OpenAI, adding pressure to Oracle’s outlook. On Wednesday, the company announced that fiscal 2026 spending is expected to be $15 billion higher than earlier estimates.

The firm missed Wall Street expectations for future cloud contracts and issued a third-quarter revenue forecast below analyst estimates. At least 13 brokerages cut their price targets following the announcement. Some analysts, however, suggested the spending was necessary to meet surging AI demand. BofA Global Research noted that the weakness reflects the rapid pace of capital investment cycles required to support current trends.

Broader Tech Market Impact

Other AI-related stocks also fell, including Nvidia, AMD, Micron, Broadcom, and Arm Holdings, which dropped between 3.1% and 4.2%. The declines pushed the Nasdaq to a one-week low. Optimism about AI has increasingly given way to fears of a bubble reminiscent of the dot-com era. Circular deals involving OpenAI, which has pledged more than $1 trillion in AI spending commitments by 2030, have fueled skepticism about sustainability.

Big Tech companies have turned to debt markets to finance expansion, with Meta raising over $30 billion and Amazon issuing $15 billion in bonds. This marks a shift from earlier reliance on strong cash flows to fund new initiatives. Oracle’s forward price-to-earnings ratio now stands at 29.56, compared with Microsoft at 27.24 and Amazon at 29.06. The figures highlight investor caution as valuations remain elevated amid uncertain returns.