Shares of Oracle (ORCL 10.51%) are falling today, down 13.7% as of 12:09 p.m. ET. The drop comes as the S&P 500 and Nasdaq Composite lost 0.3% and 1.1%, respectively.
Oracle reported earnings after the bell on Wednesday that fell short of Wall Street's expectations. The company's mixed report is dragging down much of the market, as it has done little to ease investor anxiety over whether the artificial intelligence (AI) boom is actually an AI bubble.
NYSE: ORCL
Key Data Points
Oracle's capex tripled year over year
Oracle missed its top line, delivering $16.06 billion when Wall Street had projected $16.21 billion for the quarter. It did, however, handily beat on its bottom line, reporting earnings per share (EPS) of $2.26 when $1.64 was expected.
The figure that really spooked investors was Oracle's capital expenditures (capex), which totaled $12 billion for its second quarter -- three times what it spent during the same period last year and 50% more than Wall Street was expecting. The company also raised its full-year capex guidance to a whopping $50 billion, up from the $35 billion it had been projecting.
Image source: Getty Images.
Oracle's OpenAI deal carries significant risk
Oracle is highly leveraged, relying on expensive debt to fund its rapid buildout of AI data centers. It's an extremely risky play that requires AI demand to continue to grow at a lightning pace.
The company is building these data centers primarily for OpenAI -- a company that, despite operating at a substantial loss, with revenues in the low double-digit billions, is on the hook to pay Oracle $300 billion over the next five years. If OpenAI can't fulfil its obligations, Oracle will be in serious trouble. I would not own Oracle stock.
