Oracle shares fell 2% Monday following the company’s announcement it planned to raise upwards to $50 billion in 2026.
Funding rounds of that size are no longer unusual. The surge in AI investment and the growing need for cloud capacity and data centers have pushed many companies to seek massive financing. But Oracle’s recent run has been unusually volatile. Just a few months ago, its shares jumped 40% in a single day, briefly making CEO Larry Ellison the world’s richest person (ahead of Elon Musk).
That spike came after Oracle reported a 359% increase in its remaining performance obligation (RPO, which are expected revenues based on customer commitments). That was driven by a $300 billion contract with OpenAI. Things haven’t gone so well since then, though.
The stock saw a big tumble after the company reported earnings in December that fell short of analyst’s revenue expectations, the stock saw a big tumble. And Oracle shares today are well below where they stood before the spike. As of Monday, they were more than 30% lower than the mid-September level.
The need to build out the infrastructure remains, though, thus the hunt for financing, which will be raised in debt and equity. Oracle, on Sunday, said it plans to use the $45 to $50 billion it hopes to raise this year to expand its cloud capacity as demand increases from customers including Nvidia, Meta, OpenAI, TikTok and xAI.
While the stock was higher at times on Monday, investors began to have doubts as the day went on. In recent months, the market has become increasingly concerned about Oracle’s aggressive AI buildout plans, as well as the debt the company is taking on. That has led to the underperformance of the stock.
An overreliance on OpenAI may also be a factor. While Oracle’s RPO announcement last fall gave shares a boost, a similar announcement from Microsoft last week (where RPO jumped 110% to $625 billion, with 45% of that number being a commitment from OpenAI) saw that company’s stock tumble.
Like Microsoft, Oracle has significant exposure to OpenAI’s ability to delivery on its promised business. While OpenAI has been successful in its ongoing fundraising efforts, it has made $1.4 trillion in total commitments over the next eight years. That’s despite the company still not being profitable and continually hunting for additional funding (Amazon could be the next big investor, as the companies are in talks for the retailer to purchase up to a $50 billion stake. And a possible IPO looms by the end of the year.)
Some analysts see Oracle’s financing plan as a way to reduce that dependence. By issuing equity and slightly diluting existing shareholders, Oracle can help fund its expansion without jeopardizing its investment-grade credit rating, a key factor for more conservative investors such as pension funds.
“Oracle is not only saying they’re committed to investment-grade debt, but they are sending a clear message to bond investors and the rating agencies that they are,” Guggenheim analysts said in a note to investors.
Oracle’s hunt for additional funding underscores just how competitive the AI field is these days. The company is racing to catch up in the cloud infrastructure field with Amazon Web Services and Microsoft. The more infrastructure-as-a-service (essentially computing power and storage it can rent out) Oracle has available, the more it can share in the cash outflow that AI companies are doling out.
Whether Oracle can regain investor goodwill on an ongoing basis will likely be determined March 9, when it is next expected to report quarterly earnings. Investors will be looking for guidance about cloud capacity and AI partnerships. If revenues growth in that segment outpaces spending, Oracle could reverse the decline it has been seeing for the past several months.