Disappointing Oracle results knock $70bn off value amid AI bubble fears | Technology sector

Oracle’s disappointing results caused a more than $70 billion drop in the value of the software and data company co-founded by Trump ally Larry Ellison and raised fears of a bubble in artificial intelligence-related stocks.

The company’s shares fell 11.5 per cent overnight after it reported revenues rose a lower-than-expected 14 per cent to $16bn (£12bn) in the latest quarter and said it was increasing its AI spending by around $15bn.

The business reported weaker-than-expected quarterly revenue in the three months to the end of November as sales at its cloud computing business grew slower than expected at 34%.

Investors were also disappointed by slower-than-expected 68% growth in revenues from infrastructure businesses.

At the same time, investors feared Oracle would raise its investment forecasts in artificial intelligence. It expects capital spending to rise 40 percent to $50 billion, with much of the increase going toward building data centers.

The company is already managing a growing pile of debt; Oracle’s long-term debt has increased 25% to $99.9 billion in the last 12 months.

“Obviously, the report wasn’t dramatically bad, but it confirmed concerns about heavy AI spending financed by debt and with an unknown timeline to generate revenue,” said Ipek Ozkardeskaya, a senior analyst at Swissquote.

Continued optimism about the potential of AI technology has led to a jump in company valuations in recent months, but there have been a growing number of warnings from policymakers and business leaders who say stock market valuations could fall if investors are disappointed by the progress or adoption of AI technology.

Oracle has become a major technology player producing software for Fortune 500 companies around the world, but has recently found strength in cloud computing and has become the fastest-growing rival to Amazon, Microsoft and Google. The rise in artificial intelligence has also been a boon for the company, which has struck lucrative deals with companies like OpenAI, maker of ChatGPT.

However, concerns are also growing about how dependent companies have become on each other’s financing within the artificial intelligence ecosystem. Oracle said overnight that its measure of revenue from customer contracts rose 440% last year, but analysts remained cautious when it appeared the contracts were driven by new commitments from Meta and Amazon.

“While these are two solid customers, this will not allay fears that big tech AI investments are becoming cyclical, leaving them vulnerable to a loss of investor confidence,” said Kathleen Brooks, director of research at XTB.

“Overall, strong contract growth was not enough to calm fears about AI and large investments. [capital expenditure] “The expenses that companies need to create artificial intelligence infrastructure.”

Other AI and technology-related stocks also fell in after-hours trading following Oracle results. Nvidia’s share price fell 1.3%, while Google owner Alphabet fell 0.3%. Shares of Japanese artificial intelligence investor SoftBank fell 7.7% on Thursday.