On Thursday, Oracle’s share price slumped by nearly 11%. The company’s latest earnings report showed that capital expenditure on AI data center construction has continued to soar, but the pace at which this spending is being converted into revenue has failed to meet investors’ expectations, sparking concerns over the commercialization pace of its AI infrastructure business.
The sharp decline also caused 81-year-old Larry Ellison to drop from second to third place on the Bloomberg Billionaires Index. Ellison’s massive paper loss comes at a time when he has pledged financial backing for his son David Ellison’s 108 billion USD bid to acquire Warner Bros. Discovery.
After Paramount Skydance, controlled by Ellison, lost out to Netflix in the bidding war for control of Warner Bros. Discovery, the company this week chose to submit a direct all-cash offer of 30 USD per share to shareholders. The funding behind this proposal includes 41 billion USD in new equity, backed by the Ellison family and RedBird Capital.
Despite Thursday’s plunge, the market value of Ellison’s Oracle shareholding still stands at 202.8 billion USD, but doubts surrounding the company’s AI strategy are clearly intensifying.
Although Oracle has been building out its cloud infrastructure for more than a decade, it is only in the past two years that it has truly become an important player in the AI wave. Earlier this year, the company announced a 300 billion USD compute cooperation agreement with OpenAI, and it is also jointly participating in the 500 billion USD “Stargate” hyperscale data center project.
However, the company’s capital expenditures soared to 12 billion USD last quarter, and investors are increasingly uneasy that the pace of spending far exceeds the pace of monetization. The cost of insuring against Oracle’s debt default has climbed to its highest level in more than two years, and Morgan Stanley expects its adjusted net debt to nearly triple from the current roughly 100 billion USD by the 2028 fiscal year.
Market Commentary:
On 10 September this year, Oracle’s share price surged 36% on the back of blowout earnings and an upgraded cloud business outlook — its biggest single-day gain since 1992. Now, however, the share price has fallen about 40% from its peak. This volatility highlights the transformation pressures facing tech giants in the capital-intensive AI cycle.
