Oracle is gearing up to increase its debt and equity financing by nearly $40 billion in 2027, according to its latest forecasts. The cloud computing giant's anticipated spending for capital investments in fiscal 2026 reached $55.66 billion, significantly exceeding its own goal of $50 billion. This surge has raised eyebrows among analysts and investors amid concerns regarding the company's escalating debt and diminishing free cash flow, leading to an 8.9% drop in its stock during after-hours trading.
On June 10, Oracle revealed its intention to raise funds through a mix of debt and equity offerings, which includes a previously disclosed $20 billion equity issuance. Additionally, Oracle is in the process of constructing a significant "Stargate" data center in Texas in collaboration with OpenAI. This facility is expected to be over 75% complete within the next three months, allowing customers access to advanced coding models hosted on Oracle's cloud platform.
CEO Clay Magouyrk highlighted on a conference call that Oracle is ramping up its capacity, forecasting that its first quarter of 2027 could deliver almost one gigawatt of power—remarkably similar to the total output from the previous four quarters combined.
In its ambitious push, Oracle has set capital expenditure expectations for 2027 as high as $95 billion, including anticipated repayments from clients of up to $25 billion. The company had initially set a target of raising $50 billion through debt and equity for the current fiscal year, marking a considerable financial maneuver in light of investor concerns regarding its debt levels.
CFO Hilary Maxson provided insights into the capital spending breakdown, indicating an expected $70 billion in direct expenditures alongside another $20 to $25 billion anticipated in customer repayments, although she did not specify a timeline for these repayments. Market consensus anticipated capital spending around $67.66 billion.
Maxson also cautioned that Oracle's gross margins are set to decline as data center initiatives begin to scale up. The company announced that it currently holds remaining performance obligations—indicative of future revenue contracts—totaling $638 billion, overshadowing analysts' estimates of $592.52 billion. She projected that Oracle expects to realize about 12% of these contracted revenues, or approximately $76.56 billion, within the next year, with another 34%, roughly $216.92 billion, anticipated in the following two years.
Despite the promising revenue forecasts, concerns linger regarding how Oracle will finance its ambitious capital expenditures, which could complicate its funding strategies. eMarketer analyst Jacob Bourne noted that while demand for cloud infrastructure is robust, there are growing anxieties about maintaining financial stability as capital expenses consistently surpass expectations and free cash flow remains negative.
Oracle's total revenue for the fourth quarter was reported at $19.18 billion, slightly above analyst expectations of $19.10 billion, while its adjusted earnings per share were $2.03, surpassing the projected $1.96.
