“Oracle’s aggressive expansion into AI infrastructure has led to soaring capital expenditures, doubling to $50 billion for fiscal 2026, resulting in heightened debt levels estimated at $20-30 billion annually over the next three years. Lease commitments have surged nearly 150%, pushing free cash flow into a $10 billion deficit, while the stock lags amid investor concerns over financial stability.”
Oracle’s AI Expansion Puts Strain on Financial Health
Oracle has ramped up its capital spending to fuel AI-driven cloud services, with fixed assets climbing to $53.2 billion in the first quarter of fiscal 2026, up from $43.5 billion at the end of fiscal 2025. This buildout includes massive investments in data centers to meet surging demand for AI computing power, but it has come at a cost. Net cash used in investing activities hit $8.7 billion in the recent quarter, a sharp increase from $2.8 billion a year earlier, reflecting the intensive infrastructure rollout.
The company’s balance sheet shows total liabilities at $155.8 billion as of August 2025, compared to $147.4 billion in May 2025, driven largely by noncurrent obligations reaching $115.9 billion. Analysts project Oracle will need to issue $20 billion to $30 billion in new debt each year through 2028 to sustain this pace, raising questions about maintaining its investment-grade credit rating. Management has emphasized diverse funding sources, including bonds and customer-financed chips, yet the escalating commitments have sparked unease on Wall Street.
Free cash flow has turned deeply negative, widening from a $2 billion shortfall to $10 billion amid the AI push. Revenues grew to $14.9 billion in the latest quarter, up from $13.3 billion a year prior, bolstered by cloud infrastructure sales, but operating expenses rose to $10.6 billion, with research and development alone at $2.5 billion. Net income stood at $2.9 billion, yielding basic earnings per share of $1.04.
Stock performance has suffered, with shares closing at $197.99 on December 28, 2025, down 0.3% from the previous day and well below peaks earlier in the year around $281. Over the past 12 months, monthly closes fluctuated from lows of $139.81 to highs of $281.24, but recent months saw declines to $201.95 in November before settling near $198. The volatility underscores investor skepticism about short-term returns on AI investments, despite long-term growth potential in the sector.
Lease obligations have ballooned 150% due to AI-related expansions, adding pressure to current liabilities of $39.9 billion. Equity attributable to parent increased to $24.2 billion, providing some buffer, but the debt-fueled strategy has led to a stock selloff following recent earnings, where near-term profitability lagged expectations.
Disclaimer: This news report is for informational purposes only and does not constitute financial advice or investment tips. Sources include public financial data.
Leave a Reply