Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Oracle stock dropped on Wednesday after it reported disappointing revenues alongside a $15bn increase in its planned spending on data centres this year to serve artificial intelligence groups.
Shares in Larry Ellison’s database company fell 11.5 per cent in after-hours trading after it reported revenues of $16.1bn in the last quarter, up 14 per cent from the previous year, but below analysts’ estimates.
Oracle raised its forecast for capital expenditure this financial year by more than 40 per cent to $50bn. The outlay, largely directed to building data centres, climbed to $12bn in the quarter, above expectations of $8.4bn.
Its long-term debt increased to $99.9bn, up 25 per cent from a year ago.
Oracle has launched an aggressive bid to catch up to much larger cloud players such as Google, Amazon and Microsoft in the race to supply the vast amount of computing power that AI groups including OpenAI and Anthropic need to train and run their models.
Clay Magouyrk, Oracle’s co-chief executive, said its cloud contracts would “quickly add revenue and margin to our infrastructure business” as he defended the vast investments.
Yet the company said it expected full-year revenues to remain unchanged from its previous forecast of $67bn. It expected to generate $4bn more in revenue the following fiscal year.
Total bookings for future revenue, known as remaining performance obligations, rose 15 per cent to $523bn in the three months to the end of November, supported by deals with Meta and Nvidia.
Investors initially welcomed the push into AI from Oracle. Shares surged after its last earnings in September when it disclosed it had added more than $300bn in bookings, largely driven by data centre contracts with OpenAI.
But the stock has given up its gains since then as investors worry about the large amounts Oracle will have to borrow and spend on infrastructure for the ChatGPT maker — and concerns over the start-up’s ability to pay for these contracts in the years ahead. OpenAI has struck deals to spend $1.4tn over the next eight years on computing power.
Oracle’s Big Tech rivals such as Amazon, Microsoft and Google have helped reassure investors about their large capital investments by posting strong earnings from their vast cloud units.
But in the last quarter, Oracle’s cloud infrastructure business, which includes its data centres, posted worse than expected revenues of $4.1bn. Ellison’s company is also relying more heavily on debt to fuel its expansion.
Net income rose to $6.1bn in the quarter, boosted by a $2.7bn pre-tax gain from the sale of semiconductor company Ampere to SoftBank.
The company added an additional 400MW of data centre capacity in the quarter, Magouyrk told investors. Construction was on track at its large data centre cluster in Abilene, Texas, which is being built for OpenAI, he added.
Magouyrk, who took over from Safra Catz in September, said there was ample demand from other clients for Oracle’s data centres if OpenAI did not take up the full amount it had contracted for.
“We have a customer base with a lot of demand such that whenever we find ourselves [with] capacity that’s not being used, it very quickly gets allocated,” he said.
Co-founded by Ellison as a business software provider, Oracle was slow to pivot to cloud computing. The billionaire remains chair and its largest shareholder.
Investors and analysts have raised concerns in recent months about the upfront spending required by Oracle to honour its AI infrastructure contracts. Moody’s in September flagged the company’s reliance on a small number of large customers such as OpenAI.
Morgan Stanley forecasts that Oracle’s net debt will soar to about $290bn by 2028. The company sold $18bn of bonds in September and is in talks to raise $38bn in debt financing through a number of US banks.
Brent Thill, an analyst at Jefferies, said Oracle’s software business — which generated $5.9bn in the quarter — provided some buffer amid accelerated spending. “But the timing mismatch between upfront capex and delayed monetisation creates near-term pressure.”
Doug Kehring, principal financial officer, said the company was renting capacity from data centre specialists to reduce its direct borrowing.
The debt to build the Abilene site was raised by start-up Crusoe and investment group Blue Owl Capital, and Oracle has signed a 15-year lease for the site.
“Oracle does not pay for these leases until the completed data centres . . . are delivered to us,” Kehring said, adding that the company was “committed to maintaining our investment-grade debt ratings”.
Credit: Source link
