Oracle’s recent financial results caused a significant stir in the stock market. On Thursday, the company’s shares dropped 15%, erasing about $80 billion from its market value, which fell from $630 billion to $550 billion. This decline sparked worries about a potential bubble in AI-related stocks. Shares of Nvidia, a key player in AI technology, also took a hit after Oracle’s report.
Investors were caught off guard by Oracle’s lower-than-expected revenue growth of just 14%, reaching $16 billion for the quarter. This, combined with disappointing growth in its cloud business and infrastructure, raised red flags. Analysts noted that while the report wasn’t a disaster, it highlighted ongoing concerns about Oracle’s heavy spending on AI, funded by significant debt.
Oracle plans to raise its capital investment in AI by 40%, expecting to spend $50 billion, largely to expand their data centers. However, the company’s long-term debt had surged by 25% in the past year, now standing at nearly $100 billion. The increase in debt has made investors uneasy, as reflected in the rising costs of insuring it.
Ipek Ozkardeskaya, a senior analyst at Swissquote, commented, “This report confirms worries around substantial AI spending without a clear timeline for generating revenue.” Many experts warn that the excitement surrounding AI might not lead to immediate financial returns, which could scare off investors.
In recent months, the AI industry has seen soaring valuations. However, policymakers and industry leaders have raised concerns that if the promised advancements don’t materialize, stock prices could plummet. A recent survey highlighted that 61% of investors believe AI stock valuations are overinflated, indicating widespread caution in the market.
Oracle’s shift toward cloud computing made it a formidable competitor against giants like Amazon and Microsoft, and collaborations with companies like OpenAI have fueled its growth. Yet, there’s increasing worry about the interconnectedness within the AI sector, where companies rely heavily on each other’s financing. For instance, Oracle reported a staggering 440% increase in revenue from customer contracts, but this growth was mainly driven by commitments from Meta and Amazon, sparking doubts about sustainability.
Analysts caution that while strong contracts look good on paper, reliance on a few major companies leaves Oracle vulnerable. Kathleen Brooks, a research director at XTB, emphasized, “The robust contract growth isn’t enough to ease fears about AI spending and the enormous capital required to build the necessary infrastructure.”
The ripple effects of Oracle’s disappointing results were felt across the tech industry. Nvidia’s stock fell by 1.3%, and Alphabet’s by 0.3%. In Japan, SoftBank, a significant AI investor, saw its shares drop by 7.7%. As the landscape shifts, the future of AI and related stocks remains uncertain. Keeping an eye on developments in this space will be crucial for investors moving forward.
Source link
