Key takeaways Oracle shares plunged more than 11% in premarket trading on Thursday after missing revenue expectations despite beating earnings estimates. The cloud giant raised capital expenditure for...
The Austin-based company reported fiscal second-quarter revenue of $16.06 billion for the period ended November 30, missing the $16.21 billion analyst consensus compiled by LSEG.
However, Oracle exceeded earnings expectations with adjusted earnings per share of $2.26, well above the $1.64 forecast.
The disappointing results sent shockwaves through technology markets, pulling down other AI-linked stocks.
Nvidia dropped 1.4% in premarket trading, Advanced Micro Devices fell 1.3%, memory firm Micron declined 1%, cloud provider CoreWeave slid 3.9%, and Microsoft dipped 0.4%.
The selloff intensified as Oracle revealed plans to dramatically increase its artificial intelligence infrastructure spending.
Principal Financial Officer Doug Kehring disclosed on the company's earnings call that Oracle now expects fiscal 2026 capital expenditures to reach approximately $50 billion, up from $35 billion projected in September. The previous fiscal year saw capital spending of $21.2 billion.
"Given the added RPO this quarter that can be monetized quickly starting next year, we now expect fiscal 2026 capex will be about fifteen billion higher than we forecasted after Q1," Kehring stated during the call, according to The Register.
The aggressive spending plans have intensified investor scrutiny of Oracle's debt levels.
The company's free cash flow turned negative by approximately $10 billion in the November quarter, significantly worse than the negative $5.2 billion consensus estimate from StreetAccount.
During the call, Kehring attempted to reassure investors about the company's financial strategy.
"We've been reading a lot of analyst reports, and we've read quite a few that show an expectation of upwards of $100 billion for Oracle to go out and kind of complete these buildouts," Kehring said, according to CNBC.
"And based on what we see right now, we expect we will need less, if not substantially less, money raised than that amount to go and fund this buildout."
He added that Oracle remains "committed to maintaining our investment grade debt rating" and highlighted alternative financing options.
"In addition, there are other financing options through customers that may bring their own chips to be installed in our data centers and suppliers who may lease their chips rather than sell them," Kehring explained.
"Both of these options enable Oracle to synchronize our payments with our receipts and borrow substantially less than most people are modeling."
Despite the revenue miss, Oracle reported a massive increase in contracted future business.
Remaining performance obligations, a measure of revenue that has been contracted but not yet recognized, soared 438% year-over-year to $523 billion, exceeding the $501.8 billion analyst estimate.
"Remaining Performance Obligations (RPO) increased by $68 billion in Q2, up 15% sequentially to $523 billion, highlighted by new commitments from Meta, NVIDIA, and others," Kehring said in the company's official release.
The company's cloud infrastructure revenue grew 68% to $4.1 billion, while total cloud revenue reached $7.98 billion, slightly above the $7.92 billion consensus
. However, Oracle's software business declined 3% to $5.88 billion, falling short of the $6.06 billion estimate.
Net income rose substantially to $6.14 billion, or $2.14 per share on a GAAP basis, compared to $3.15 billion, or $1.13 per share, in the year-ago period.
The earnings were boosted by a $2.7 billion pretax gain from Oracle's sale of its stake in chip designer Ampere to SoftBank Group for $6.5 billion.
In a notable strategic announcement, Oracle Chairman and Chief Technology Officer Larry Ellison revealed the company is moving away from designing its own chips in favor of what he termed "chip neutrality."
"Oracle sold Ampere because we no longer think it is strategic for us to continue designing, manufacturing, and using our own chips in our cloud datacenters," Ellison stated in Wednesday's release.
"We are now committed to a policy of chip neutrality where we work closely with all our CPU and GPU suppliers. Of course, we will continue to buy the latest GPUs from Nvidia, but we need to be prepared and able to deploy whatever chips our customers want to buy."
Oracle shares had already suffered a 23% decline in November, marking their worst monthly performance since 2001.
As of Wednesday's close, the stock traded 32% below its September record high, though it remained up approximately 34% for the year, outperforming the Nasdaq's 22% gain over the same period.
The company projected fiscal third-quarter adjusted earnings per share of $1.70 to $1.74, with revenue growth of 19% to 21% year-over-year.
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