Oracle's Stock Plunges Amid Concerns Over AI Build Costs

Oracle's stock has dropped by about 33% over three months, while other tech companies like Amazon and Salesforce have performed better. The drop is largely due to concerns about Oracle's AI build costs and its revenue growth.

The company recently reported a record-breaking $638 billion backlog of remaining performance obligations, which means that it has signed contracts with customers for services that will be delivered over several years. However, the spending required to fulfill these contracts does not wait, in fact, Oracle expects to spend around $70 billion on capital expenditures in fiscal 2027, which is more than its entire revenue from last year.

The company plans to fund this spending by raising about $40 billion in debt and equity, including a $20 billion at-the-market equity issuance. However, this will likely lead to a decline in gross margin and potentially prolonged margin erosion.