Oracle shares slide on $15B increase in data center spending

Oracle's tech rivals such as Amazon, Microsoft and Google have helped convince investors of their big investments by reporting strong earnings from their huge cloud units.

But in the most recent quarter, Oracle's cloud infrastructure business, which includes data centers, posted worse-than-expected revenue of $4.1 billion. Ellison's company also relies heavily on debt to fuel its expansion.

Net income rose to $6.1 billion for the quarter, helped by a $2.7 billion pre-tax gain from the sale of semiconductor company Ampere to SoftBank.

The company added another 400 MW of data center capacity during the quarter, Maguirk told investors. Construction on a large cluster of data centers in Abilene, Texas, being built for OpenAI, is well underway, he said.

Maguirk, who replaced Safra Katz in September, said there would be strong demand for Oracle data centers from other customers if OpenAI didn't take on the full amount it was contracted for.

“We have a customer base with high demand, so whenever we find ourselves [with] the power that is not used is distributed very quickly,” he said.

Oracle, co-founded by Ellison as a business software provider, has been slow to move toward cloud computing. The billionaire remains chairman and largest shareholder of the company.

In recent months, investors and analysts have raised concerns about the upfront costs Oracle needs to fulfill its AI infrastructure contracts. In September, Moody's noted the company's dependence on a small number of large clients such as OpenAI.

Morgan Stanley predicts Oracle's net debt will rise to about $290 billion by 2028. The company sold $18 billion in bonds in September and is in talks to raise $38 billion in debt financing through a number of U.S. banks.

Brent Till, an analyst at Jefferies, said Oracle's software business, which brought in $5.9 billion in the quarter, provided some buffer as costs accelerated. “However, the timing mismatch between upfront capex and deferred monetization creates pressure in the short term.”

Doug Kering, chief financial officer, said the company leases capacity from data center specialists to reduce direct borrowing.

Debt for the Abilene facility was raised by startup Crusoe and investment group Blue Owl Capital, and Oracle signed a 15-year lease.

“Oracle is not paying for these leases until the completed data centers are delivered to us…” Kering said, adding that the company is “committed to maintaining our investment-grade debt ratings.”