Oracle Tumbles After Mixed Results, Capex Comes In Hot; Warns Another $40BN Debt/Equity Capital Raise Coming

With tech stocks cracking for a 3rd straight day, and with the broader market closing at the lows in a surprising sign of weakness, many were looking to ORCL to kickstart the AI euphoria which has been oddly missing in recent days (and which send NVDA stock briefly just below the key level of $200). Well, for those hoping that ORCL would be the much needed spark, they may be disappointed after ORCL stock pumped in kneejerk reaction (despite Q4 earnings that were mixed at best).... then dumped after the company announced it would be joining the circus of companies selling debt/equity to fund its runaway capex.

Here is what ORCL reported for the just concluded fiscal Q4:

• Adjusted EPS $2.11 vs. $1.70 y/y, beating estimates of $1.97
• Adjusted revenue $19.18 billion, +21% y/y, beating estimates of $19.09 billion

The revenue breakdown was mixed at best, with ugly Software and SaaS prints offset by ok Infrastructure revenue"

• Cloud Infrastructure revenue (IaaS) $5.79 billion, +93% y/y, beating est $5.72 billion 
  • Cloud Infrastructure revenue (IaaS) in constant currency +92%, estimate +91.7%
• Cloud revenue (IaaS plus SaaS) $9.91 billion, +48% y/y, missing est $10 billion
  • Cloud revenue (IaaS plus SaaS) in constant currency +46%, estimate +47.4%
• Cloud Application revenue (SaaS) $4.13 billion, +12% y/y, missing est $4.17 billion
  • Cloud Application revenue (SaaS) in constant currency +10%, estimate +10.8%
• Software revenue $6.82 billion, -2.1% y/y, beating est of $6.88 billion
  • Software Support revenue $4.94 billion, -0.4% y/y, estimate $4.98 billion
• Software License revenue $1.88 billion, -6.3% y/y, missing est $1.93 billion
• Hardware revenue $924 million, +8.7% y/y, beating est $836.2 million
• Service revenue $1.52 billion, +13% y/y, estimate $1.41 billion

Going down the line: 

• Adjusted operating income $8.59 billion, +22% y/y, beating est $8.27 billion
• Adjusted operating margin 45% vs. 44% y/y, beating est 43.5%

As for ORCL's pride and joy, namely remaining performance obligations, or RPO backlog, it rose to $638 billion vs. $138 billion y/y. Good luck collecting on that.

Looking at fiscal Q1 ahead, the company was quite cheerful of course:

• Total Revenues are expected to grow from 27% to 29% (in both constant currency and USD)
• Total Cloud revenue is expected to grow between 57% and 63% in constant currency and is expected to grow between 58% and 64% in USD.
• Non-GAAP earnings per share is expected to grow between 16% and 19% and be between $1.71 and $1.75 in constant currency and grow between 17% and 20% and be between $1.72 and $1.76 in USD.

Looking at the full year fiscal 2027, the company reaffirmed its prior revenue guidance of $90 billion total revenue and raises its non-GAAP EPS guidance to $8.05, which is growth of 18%.

As a reminder, AVGO imploded when it failed to raise its full-year guidance last week. Well, ORCL also failed to do so, likely disappointing the market. And indeed, according to a kneejerk take by Vital Knowledge, “The fact the F27 sales guide isn’t being raised is a disappointment.” It also writes that “this is an OK release with continued robust growth in backlog (RPOs), and the cash performance wasn’t as bad as feared,” but that the company “is still facing a period of heavy cash outflows as it builds the infrastructure needed to fulfill its backlog, and this will require more debt and equity.”

And to that point, here is the kicker that sent the stock sliding after hours. But before we get there, one more point - ORCL said that free cash flow was negative $23.7 billion for fiscal year 2026 as "Oracle continued to execute on investments to support the growth of its Cloud Infrastructure business."

As Bloomberg notes, Oracle's quarterly CapEx was higher than estimates, raising investor concerns about the profitability of the company’s AI infrastructure business. Capital expenditures, largely a measure of data center spending, were $15.9 billion in the period ended May 31, bringing the annual total to $55.7 billion, higher than Oracle’s projection for $50 billion in spending.

The company didn’t offer an outlook on its spending in the new fiscal year. Wall Street expects $61.7 billion in capital spending in the year ending in May 2027.

Which of course means that the company's free cash flow meltdown is only accelerating, and the only way ORCL can fund its staggering buildout - since it doesn't have nearly enough revenue and profit - is with even more equity and/or debt. $40 billion to be precise:

"In fiscal year 2027, Oracle expects to raise approximately $40 billion through a combination of debt and equity financing including its previously announced $20 billion at-the-market equity issuance. Oracle does not expect to issue additional debt in calendar year 2026"

The coming dilution follows the $43 billion in debt and $5 billion in equity raised in 2026 as part of the company's pivot away from database software to a provider of computing power for artificial intelligence work, which means it is embarking on a massive build-out of data centers for OpenAI and other customers. Alas, said pivot costs lots of money, in fact more than the company said just three months ago, and the stock  is not happy, sliding more than 5% in afterhours trading after closing at $201.26. The company’s stock had climbed 35% over the past three months, likely driven by better investor sentiment toward computing providers and OpenAI, Oracle’s most important customer, wrote Derrick Wood, an analyst at TD Cowen.