Oracle shares slip ahead of earnings as AI spending rises

Oracle shares fell 3.3% in premarket trading as investors awaited the company’s fiscal fourth-quarter results to assess whether rapid expansion of AI infrastructure can justify rising debt and sustained negative free cash flow.

Analysts expect adjusted earnings of $1.96 a share on revenue of $19.1 billion for the quarter, about 20% revenue growth and roughly 15% earnings growth from a year earlier. Oracle Cloud Infrastructure revenue is forecast to rise sharply year over year, following a period in which the company reported the first quarter in more than 15 years with organic revenue and earnings growth above 20%.

Cash flow and borrowing are central concerns for investors. Oracle’s capital expenditures totaled about $50 billion over the most recent nine months, compared with $12.1 billion in the same period a year earlier. The company announced plans in February to raise as much as $50 billion through bond offerings and convertible preferred stock to help finance the buildout. Trailing free cash flow stood at negative $24.7 billion.

For the fiscal fourth quarter, analysts expect free cash flow near negative $3.5 billion, slightly worse than negative $2.9 billion a year earlier but an improvement from two prior quarters when negative free cash flow exceeded $20 billion. Long-term debt has climbed above $124 billion, and interest expense rose about 32% year over year.

Reported debt and lease liabilities increased 68% in the most recent quarter to about $162 billion. Oracle disclosed an additional $261 billion in lease liabilities that had not yet commenced as of February.

The infrastructure buildout has begun to affect profit measures. Depreciation rose to about 12.5% of companywide sales in the latest quarter, up from 7.1% a year earlier. Analysts project adjusted operating margin will decline to roughly 43% from 44% and gross margin to fall toward about 67% from roughly 72%.

Oracle lists remaining performance obligations of about $553 billion, representing contracted future revenue. The company has set long-term targets that envision Oracle Cloud Infrastructure revenue reaching $166 billion by fiscal 2030 and accounting for about three-quarters of total sales.

Market sentiment in the broader AI and chip-related sector has cooled after a recent earnings report from a major supplier fell short of some growth expectations. The Philadelphia Semiconductor Index has fallen about 9.1% since that report, and the Nasdaq 100 is down nearly 5%, heightening investor focus on returns from heavy infrastructure spending.

Investors will use the quarter’s results for signs of sustained customer demand for Oracle Cloud Infrastructure and for guidance on how the company plans to manage its expansion while improving cash generation and handling higher interest costs.