Oracle shares tumble 11% on increased capital raise, cash concerns

Oracle Corporation's shares experienced a significant drop of 11%, marking the company's most challenging day since January 2025. This decline came after the software giant informed investors of an impending $20 billion capital raise, alongside disheartening reports of negative free cash flow over the past year. With this latest downturn, Oracle's stock has now fallen approximately 8% year-to-date, underperforming the Nasdaq, which has risen around 9%. In its fiscal fourth quarter, Oracle did report better-than-expected earnings, with revenue soaring 21% to $19.18 billion, surpassing analysts' average estimate of $19.1 billion. Adjusted earnings per share also exceeded expectations at $2.03, compared to the anticipated $1.96. However, the company's extensive investments in artificial intelligence are raising concerns among investors. Many are questioning whether these hefty expenditures will translate into future profit growth, especially in light of the negative free cash flow reported for the last fiscal year, which reached a staggering $23.7 billion. To bolster its finances, Oracle announced plans to raise a total of $40 billion through debt and equity financing, which includes the recently disclosed $20 billion share sale. This follows a substantial capital accumulation in fiscal 2026, where the company secured $43 billion in debt and $5 billion in equity. Oracle's capital expenditures surged by 162% to reach $55.7 billion, with new CFO Hilary Maxson projecting a net cash outlay for capital expenditures for fiscal 2027 to be around $70 billion, excluding customer prepayments of $20 billion to $25 billion. Despite the financial strains, Oracle maintained its revenue guidance of $90 billion for the fiscal year 2027 and raised its adjusted earnings per share forecast to $8.05, slightly above analysts' expectations of $8.01 and projected revenues of $88.9 billion. Analysts from Piper Sandler expressed a cautiously optimistic view, stating, "We believe ORCL will remain debated, but we are constructive on ORCL's AI-driven consumption growth," and recommended that investors buy the stock. For the fiscal first quarter, Oracle anticipates adjusted earnings per share between $1.72 and $1.76, alongside revenue growth of 27% to 29%. Analysts had been projecting $1.68 in adjusted earnings per share and $19.06 billion in revenue, implying roughly 28% growth. Notably, Oracle's cloud infrastructure revenue saw a remarkable increase of 93%, reaching $5.8 billion. Additionally, the company reported a remaining performance obligation of $638 billion as of May 31, an astonishing 363% increase, far exceeding analyst expectations of $595.67 billion. Bank of America analysts, who are also recommending Oracle shares, noted that over 50% of the remaining performance obligation is derived from its partnership with OpenAI, particularly in the Stargate project aimed at enhancing AI infrastructure in the U.S. CEO Clay Magouyrk mentioned during a recent conference call that Oracle aims to deploy nearly one gigawatt of computing power in the current quarter, matching the total for fiscal 2026.