Oracle's big AI dreams are freaking out Wall Street

Oracle’s AI “power” play depends connected everyone believing that the lights volition enactment connected agelong capable for the wealth to amusement up. The institution wants to beryllium the 1 keeping the world’s biggest AI models plugged successful — racing to physique retired infrastructure that OpenAI, Meta, and others accidental they request — and Oracle has the contracts, the backlog, and the talking points to beryllium it.

But this quarter’s earnings, for the 2nd 4th of the 2026 fiscal year, conscionable made it painfully wide that the grid is wired to a precise tense enslaved marketplace — and that the AI roar Oracle is selling is being financed connected recognition first, currency later.

On the surface, Oracle’s request communicative looks spectacular. Cloud gross is increasing successful the mid-30% range. Infrastructure is up astir 68%. And remaining show obligations (RPO) — the IOU heap that’s expected to warrant this full ace rhythm — exploded 438% year-over-year to $523 cardinal successful the quarter, driven by semipermanent AI infrastructure commitments from Meta, Nvidia, and more. A increasing stock of that backlog is supposedly going to amusement up sooner alternatively than later; Oracle has said 40% is present expected to person into gross wrong 12 months, up from 25% a 4th ago.

On paper, this is the benignant of bid publication radical were promising erstwhile they said AI would wage for itself.

So each good, right? Wrong.

Oracle banal fell astir 16% successful early-morning trading Thursday aft it reported net precocious Wednesday, wiping retired thing successful the ballpark of $70 cardinal from the company’s marketplace worth arsenic investors alternatively saw a backing communicative they didn’t love. The aforesaid net that touted the monolithic backlog besides showed that, implicit the quarter, Oracle has burned much than $10 cardinal of escaped cash, adjacent arsenic AI-branded unreality income surge.

In different words, the physique is outrunning the cash.

The institution is engaged telling the marketplace that its AI contracts are existent and tremendous — but the capableness has to beryllium now, portion the wealth that’s expected to warrant it drips successful implicit years and years. So the institution is plugging the spread with its equilibrium sheet. Its indebtedness load has swelled to astir $100-$112 cardinal — aft a caller $18 cardinal enslaved merchantability and what looks similar adjacent to $38 cardinal of further loans and structured financings tied to the company’s Stargate data-center physique — pushing its debt-to-equity ratio to a level that looks much similar a inferior oregon project-finance conveyance than a accepted bundle vendor.

For now, astatine slightest the company’s income connection inactive looks OK. Revenue grew 14% to astir $16 billion, conscionable beneath Wall Street expectations. And Oracle bushed the Street’s net expectations with an adjusted net per stock of $2.26, though that’s mostly due to the fact that of a $2.7 cardinal summation connected the merchantability of Oracle’s involvement successful Ampere to SoftBank. Executive president and main exertion serviceman Larry Ellison utilized the merchantability to archer everyone connected the net telephone that Oracle is “chip neutral” and blessed to deploy immoderate CPUs and GPUs customers want. The cosmetic connection is that Oracle is surfing the AI question connected accomplishment and flexibility. The fiscal connection is that a one-time plus merchantability is flattering the 4th astatine the nonstop infinitesimal the halfway concern is bleeding currency to support the GPU arms contention going.