Oracle shares fall as investors assess up to $50 billion AI funding plan

Reuters: Oracle (ORCL.N), opens new tab shares fell about 4% in premarket trading on Monday, after it outlined plans to raise $45 billion to $50 billion this ​year to expand its cloud infrastructure, fueling investor concerns about ‌its rising debt load.

 

The software company, chaired by billionaire Larry Ellison, said the fundraising was aimed at expanding cloud capacity to meet contracted demand from major customers such as AMD (AMD.O), opens new tab, Meta (META.O), opens new tab, Nvidia (NVDA.O), opens new tab, OpenAI, TikTok and xAI.

 

While companies continue ‌to ramp up capacity despite limited visibility into potential returns, ​investors are concerned whether a surge in artificial intelligence-related spending across the technology sector would generate sustained demand.

 

"The perception is that Oracle's fortunes are ‍now heavily tied to OpenAI and combined with the company's plans to raise up to $50 billion to invest in 2026, nervousness about the situation looks unlikely to go away ⁠any time soon," said Russ Mould, investment director at AJ Bell.

 

Oracle ‍said it aims to meet the funding target through a roughly even mix of equity ‌and debt, ‌including equity-linked securities, common stock and a new at-the-market program of up to $20 billion, along with issuance of senior unsecured bonds planned for early next

year.Bernstein analysts said the mix of debt and equity should support ⁠Oracle's investment-grade credit ⁠rating and reduce ​uncertainty around the timing and cost of future financing.

 

The company faces heightened scrutiny after a recent bondholder lawsuit in January and last year's spike in its credit default ‍swap costs.

The cost of insuring Oracle's debt against default surged in December last year to its highest in at least five years.

 

Jefferies analysts said the financing plan "buys time" for ​Oracle's AI ambitions, but warned it could ‍weigh on margins in the near term, and said free cash flow was unlikely to turn ​positive until FY29.