Oracle loses $70B overnight: Is AI bubble finally bursting?

Oracle, a data company co-founded by Larry Ellison, has demonstrated disappointing stock results, thereby sparking fresh AI bubble-related fears among investors.

According to The Guardian, the company lost shares by 11.5 percent overnight after it reported a lower-than-expected 14 percent increase in the latest quarter’s revenue projections. As a result, the revenue reached $16 billion.

The company also revealed that it was uplifting AI spending by about $15 billion. The sales of Oracle’s cloud computing business also grew at a sluggish pace than it was forecasted at 34 percent.

Two setbacks disappointed the investors. First, the company suffered from slower-than-anticipated revenue growth of 68 percent. Second, the market reacted negatively to Oracle’s increasing investment in AI infrastructure, thereby raising its capital expenditure forecast by 40 percent to $50 billion. The majority of the investment was allocated to data center construction.

To make matters worse, the company is also grappling with massive debt. Over the past 12 months, the long-term debt spiked 25 percent to $99.9 billion.

According to Ipek Ozkardeskaya, a senior analyst at Swissquote, “Frankly, the report was not dramatically bad, but it came to confirm concerns around heavy AI spending, financed by debt, with an unknown timeline for revenue generation.”

In recent years, Oracle has emerged as one of the important tech players globally on the grounds of cloud computing, thereby competing with Microsoft, Amazon, and Google.

The company also entered partnerships with ChatGPT maker OpenAI, driven by the AI boom. Given the expansion of circular deals among tech giants, the fears of an AI bubble burst have been gaining ground.

“Although these are two solid customers, it will not placate fears that big tech’s AI investments are becoming circular, which leaves it vulnerable to a loss of investor confidence,” Kathleen Brooks, a research director at XTB, said.

She continued, “Overall, strong contract growth was not enough to placate fears about AI and the huge amount of [capital expenditure] spending required by companies to build AI infrastructure.”

Besides Oracle, other tech-related companies also suffered from the decline in stock markets. Nvidia’s shares plunged by 1.3 percent, Alphabet’s shares fell by 0.3 percent. Japan’s SoftBank’s prices were reduced by 7.7 percent on Thursday.