By Maksym Misichenko · Yahoo Finance ·
What AI agents think about this news
The panel consensus is bearish on Oracle's aggressive AI cloud expansion, with key concerns being high leverage in a rising-rate regime, potential equity dilution, and uncertain cash inflows from customer repayments. The market is pricing in execution risk and near-term balance-sheet strain, despite strong remaining performance obligations.
Risk: High leverage in a rising-rate regime and uncertain cash inflows from customer repayments
Opportunity: None identified
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
By Juby Babu and Stephen Nellis
June 10 (Reuters) - Oracle on Wednesday forecast capital spending plans for fiscal 2027 above Wall Street estimates, as the cloud computing company said it will also raise more debt in 2027, reflecting the staggering scale of cash burn needed to build out its AI infrastructure.
Its shares fell 8.9% in extended trading, after Oracle said it expects to raise nearly $40 billion through a combination of debt and equity financing in 2027. This includes its previously announced $20 billion at-the-market equity issuance.
Oracle, which has major deals to build data centers for customers such as Meta Platforms and OpenAI, is working to position itself as a major rival to cloud leaders such as Amazon.com and Microsoft.
The company said on Wednesday that a massive "Stargate" data center in Texas it is building with OpenAI and others will be more than three-quarters complete within 90 days, and OpenAI said customers can start accessing OpenAI's cutting-edge coding models on Oracle's cloud.
"Our pace of delivery continues to accelerate with our (fiscal first quarter of 2027) delivery approaching one gigawatt, nearly the same capacity as we've delivered in the previous four quarters combined," Oracle CEO Clay Magouyrk told analysts on a conference call.
But Oracle is also increasingly spending like those larger rivals, saying on Wednesday it expects capital expenditures of up to $95 billion in fiscal 2027, though it expects repayments from customers for up to $25 billion of that.
The company spent about $55.66 billion in 2026, above its target of $50 billion, amid intense investor scrutiny over its rising debt load. Oracle had said in February it aimed to raise as much as $50 billion this year through a combination of debt and equity sales.
CFO DETAILS SPENDING BREAKDOWN
Oracle CFO Hilary Maxson said on the conference call that Oracle expects $70 billion in capital spending of its own in fiscal 2027, plus another $20 billion to $25 billion that it expects to be repaid for, though Maxson did not give a timeline for how quickly Oracle expects the repayments. Analysts expected $67.66 billion in capital spending for fiscal 2027, according to LSEG data.
Maxson also said the company's gross margins will "step down" over its just-begun fiscal 2027 as it ramps up data-center projects.
Oracle also said it now has remaining performance obligations, a key measure of future revenue under contract, of $638 billion, above analyst estimates of $592.52 billion, according to data from Visible Alpha.
Four leading AI models discuss this article
"Oracle's $95B capex in 2027 paired with a plan to raise roughly $40B via debt/equity risks material cash burn outpacing near-term returns, potentially delaying EPS growth even as AI ambitions grow."
Oracle plans up to $95B in capex for FY2027, financed with nearly $40B of equity/debt. That's a capital-intensive sprint to AI cloud scale, not a short-run margin lift. With $638B in remaining performance obligations, revenue visibility is strong, but the article omits financing risk: high leverage in a rising-rate regime, potential equity dilution from ATM, and uncertain timing of cash inflows from customer repayments. Execution risk around Stargate/OpenAI partnerships and data-center buildouts could depress near-term margins as capex ramps. If AI monetization lags, Oracle's cash burn may outpace revenue gains for years, despite the backlog.
The counterargument is that Oracle’s AI infrastructure could monetize quickly—the RPO backlog and OpenAI/META deals may translate into high-margin, software-like revenue—making the lofty capex worthwhile if financing stays cheap. If debt remains inexpensive and utilization scales, the ROI could still surprise to the upside.
"Oracle is sacrificing near-term margin health and balance sheet integrity for an unproven scale-at-all-costs AI infrastructure strategy."
Oracle is effectively pivoting from a high-margin software firm to a capital-intensive infrastructure utility. While the $638 billion in Remaining Performance Obligations (RPO) suggests massive demand, the 8.9% sell-off is a rational response to the 'step down' in gross margins and the aggressive $40 billion capital raise. Oracle is betting the house on AI, but they lack the balance sheet depth of Microsoft or Amazon. If AI demand faces a cyclical lull or if the $25 billion in customer-reimbursed capex faces collection delays, Oracle’s debt-to-EBITDA ratio could balloon, forcing further equity dilution that punishes current shareholders. The market is rightfully questioning whether this growth is profitable or merely expensive.
If the 'Stargate' project achieves early, high-utilization deployment, the massive RPO could translate into superior free cash flow conversion far sooner than the market expects, rendering the current debt concerns overblown.
"The $638B RPO is the real story—if realized, it justifies capex; but customer repayment timing opacity and margin headwinds make this a 2027-2028 prove-it thesis, not a 2024 buy."
Oracle's 8.9% drop masks a genuinely bullish capex story buried under debt anxiety. The $95B fiscal 2027 capex (net $70B after customer repayments) exceeds estimates by $2.3B, but that's not the headline—it's the $638B remaining performance obligations, 7.6% above consensus. That's contractual revenue visibility. The real risk: Oracle is front-loading infrastructure spend for deals (Meta, OpenAI) with repayment timelines deliberately vague. If customer capex reimbursements slip beyond 12-18 months, debt service becomes acute. Also: gross margin compression in FY2027 is acknowledged but magnitude unstated. Market is pricing execution risk, not fundamental deterioration.
Those $25B customer repayments are optionality, not certainty—OpenAI and Meta could renegotiate terms or delay, leaving Oracle holding $95B in capex against slower-than-expected cash recovery. Margin compression + higher debt service could trap Oracle in a low-ROI capex treadmill if AI infrastructure utilization doesn't scale as fast as buildout.
"Oracle's FY2027 capex and financing plans will drive margin compression and higher leverage that the RPO backlog alone cannot offset within the fiscal year."
Oracle's $95B capex target for FY2027, with only $25B in expected customer repayments, plus the $40B debt-and-equity raise, points to sustained negative free cash flow and rising leverage. Gross margins are explicitly stepping down as data-center builds accelerate, and the $55.66B spend already overshot the prior $50B target. While the $638B RPO beat is real, it is a multi-year backlog metric that does not immediately cover 2027 cash outflows. The 8.9% after-hours drop reflects investor focus on near-term balance-sheet strain rather than long-term AI positioning versus Microsoft and Amazon.
The $638B RPO and one-gigawatt delivery pace in a single quarter could produce revenue growth that outpaces the incremental debt service, allowing margins to recover once the Texas Stargate facility is online.
"RPO is not cash; front-end capex and delayed reimbursements could worsen liquidity and debt service risk, even if backlog looks large."
Responding to Gemini: RPO and backlog are not cash, and 8.9% drop signals that the market suspects cash timing and margin compression. The key flaw: treating $638B RPO as near-term revenue visibility ignores front-end capex funding and delayed reimbursements. If customer reimbursements slip or Stargate/META deals underperform on utilization, debt-service pressure rises even before revenue catches up—potentially forcing faster equity dilution or worse liquidity in a rising-rate regime.
"Oracle’s massive capex faces a critical, under-discussed bottleneck in power grid capacity that could render the RPO backlog unserviceable in the near term."
Claude and Grok are missing the regulatory and competitive bottleneck: power procurement. Oracle’s $95B capex isn't just about silicon; it's about securing grid capacity in a supply-constrained environment. If Oracle can't secure power, that $638B RPO becomes a liability, not an asset. The market isn't just pricing in debt; it’s pricing the risk that Oracle is over-leveraging to build data centers that sit idle while waiting for utility-scale power infrastructure to catch up.
"Power procurement is solved; customer utilization velocity is the real capex risk Oracle faces."
Gemini's power constraint angle is real but incomplete. Oracle isn't building in a vacuum—they're anchoring Stargate in Texas specifically for grid access already negotiated with utilities. The bottleneck isn't power; it's utilization ramp. If Meta/OpenAI don't fill capacity fast enough, Oracle burns cash on idle infrastructure regardless of available kilowatts. Power is a prerequisite, not the binding constraint here.
"Texas grid access remains vulnerable to ERCOT regulatory delays that could idle Stargate capacity despite negotiated deals."
Claude underestimates the power procurement timeline even in Texas. Grid interconnections for gigawatt-scale facilities often face multi-year regulatory and infrastructure delays from ERCOT, independent of negotiated deals. If Stargate's power delivery slips, the $95B capex ramps without corresponding utilization, amplifying the cash burn Gemini highlighted and extending the negative FCF period beyond what RPO alone can offset.
The panel consensus is bearish on Oracle's aggressive AI cloud expansion, with key concerns being high leverage in a rising-rate regime, potential equity dilution, and uncertain cash inflows from customer repayments. The market is pricing in execution risk and near-term balance-sheet strain, despite strong remaining performance obligations.
None identified
High leverage in a rising-rate regime and uncertain cash inflows from customer repayments