Oracle $ORCL ( ▲ 7.58% ) is taking a beating after earnings, with shares sinking more than 11 percent in premarket trading. A headline profit beat could not offset two major problems: softer revenue and a cloud division that fell well short of expectations.
Adjusted earnings came in at 2.26 per share, far above the 1.64 analysts were looking for. But most of that strength came from a one time boost tied to Oracle’s sale of its stake in Ampere to SoftBank. Revenue told the real story. Oracle reported 16.06 billion, below the 16.2 billion Wall Street expected, and investors immediately focused on the cloud business.
Cloud revenue landed at 8 billion, up 34 percent from last year but still meaningfully below analyst estimates of 8.8 billion. For a company pitching itself as an AI era infrastructure giant, missing the cloud growth target is the last thing shareholders wanted to see.
The second blow came on the earnings call. Oracle’s finance chief said the company now expects fiscal 2026 capital spending to be about 15 billion higher than previously forecast. The justification was strong remaining performance obligations that should convert quickly next year, but the optics are tough. Free cash flow has not kept pace with Oracle’s expansion strategy, and another large jump in spending only intensifies the debate.
Executives did offer some bright spots. They expect total cloud revenue to grow 40 to 44 percent next quarter and believe a portion of backlog can be pulled forward into fiscal 2027, adding roughly 4 billion in additional revenue. RPO hit 528 billion this quarter, up 438 percent from last year, highlighting massive booked business that has yet to be recognized.
Still, the stock is under heavy pressure. Oracle surged earlier this year after announcing a 300 billion cloud partnership with OpenAI, but that move has fully unwound. Shares remain up about 30 percent year to date, although the recent slide has erased the OpenAI related spike entirely.
The selling hit the broader AI sector as well. Nvidia $NVDA ( ▲ 3.74% ) , Micron $MU ( ▲ 7.31% ) , Microsoft $MSFT ( ▼ 0.05% ), CoreWeave $CRWV ( ▲ 22.99% ) , and AMD $AMD ( ▲ 6.87% ) all traded lower in early action. Oracle’s earnings have become a proxy for how much demand exists for next generation AI infrastructure, and this quarter raised new doubts.
Ellison tried to reassure investors with a message of chip neutrality, emphasizing plans to work with all major CPU and GPU suppliers. Oracle will continue buying Nvidia GPUs but wants flexibility as AI hardware evolves. He said the company must stay agile in what is likely to be a fast changing landscape.
The challenge now is convincing investors that the spending ramp will eventually translate into durable revenue growth. With Oracle planning to raise 20 to 30 billion in new debt annually for several years, the margin for error is getting thinner.