Quick overview

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Rising expenditures that are taking longer to translate into cloud revenue than investors want caused Oracle shares to drop more than 10% during extended trading after the company revealed an increase in spending on AI data centers and other equipment.

Cloud sales rose 34% to $7.98 billion in the second quarter of the fiscal year, while the company’s closely watched infrastructure division saw revenue increase 68% to $4.08 billion. Both figures barely met analysts’ projections.

Oracle, well-known for its database software, has recently achieved success in the cutthroat cloud computing industry. It includes businesses like ByteDance Ltd. and is undertaking a massive data center build-out to power AI work for OpenAI. Both Meta Platforms Inc. and TikTok as significant cloud consumers.

A measure of bookings, the remaining performance obligation, increased more than fivefold to $523 billion in the quarter that concluded in November. 30, according to a statement from the business on Wednesday. Bloomberg’s data shows that analysts estimated $519 billion on average.

However, Wall Street has expressed skepticism regarding the expenses and duration needed to create AI infrastructure on such a vast scale.

Oracle has committed to leasing several data center locations and has taken out debt.  Oracle faces its own mounting scrutiny over a debt-fueled data center build-out and concentration risk amid questions about the outcome of AI spending uncertainty.

“Already, wary investors’ worries about its OpenAI deal and its aggressive AI spending will probably be heightened by this revenue miss. Investors expect Oracle to generate income as soon as it has promised, despite its increased infrastructure spending. One measure of data is capital expenditures.