Oracle Stock Slumps Amid Scrutiny Over AI Infrastructure Spending and Asset Accounting
Oracle Corp. shares have traded downward significantly following a wave of market scrutiny surrounding the company’s aggressive artificial intelligence investments, heavy debt load, and accounting practices flagged by prominent investors.
Last November, prominent investor Michael Burry criticized tech industry accounting practices on social media, singling out the extension of asset useful lives as a common modern reporting method that can artificially inflate near-term earnings. Burry argued that because artificial intelligence hardware becomes obsolete rapidly, spreading server depreciation costs across five to six years overstates earnings. Specifically, he contended that Oracle and Meta earnings would be overstated by 26.9% and 20.8% respectively by 2028. Following those remarks, Oracle stock fell approximately 45% from a peak of $237.65 down to around $131, touching a 52-week low of $114 before stabilizing.
Beyond Oracle, Burry also raised concerns regarding Microsoft when it extended the useful life of its data centers and office buildings from 15 to 25 years in July, arguing the move effectively shifted future lease obligations out of reported capital expenditures to make spending appear smaller. Microsoft maintained that the adjustment would only slightly boost operating income.
Despite the pullback in Oracle’s share price, the enterprise technology giant reported strong top-line growth driven by surging demand for AI cloud services. For the first quarter of fiscal 2027, reported on Sept. 10, Oracle posted record quarterly revenue of $19.3 billion, representing a 30% increase year-over-year. Cloud infrastructure revenue surged 121% to $7.4 billion, pushing non-GAAP earnings per share to $1.92.
However, the rapid expansion has required massive capital outlays. Oracle’s first-quarter capital expenditures reached $28 billion, resulting in a negative free cash flow of $5 billion. For the full year, the company projects capital spending between $90 billion and $95 billion, following a negative free cash flow of $23.7 billion recorded in fiscal year 2026. Roughly half of Oracle’s remaining performance obligations stem from a single customer, OpenAI. In July, S&P Global Ratings downgraded Oracle’s credit rating to BBB-, sitting just one notch above speculative grade.
Balance sheet figures show Oracle carrying $169 billion in total debt and lease obligations against $37 billion in cash reserves. During the company’s earnings discussions, Deutsche Bank analyst Brad Zelnick questioned how Oracle plans to pare back spending over the next two years while competitors continue investing. CEO Mike Sicilia Magouyrk responded that capital expenditures should be evaluated separately from the company’s capacity to expand operations, while CFO Doug Maxson noted that management has not yet established a timeline for when free cash flow will turn positive.
Despite the financial pressures and debt concerns, Wall Street analysts maintain a largely optimistic outlook on the stock. Out of 43 analysts covering Oracle, 31 rate the shares a “Strong Buy,” one classifies it as a “Moderate Buy,” 10 issue a “Hold,” and one maintains a “Strong Sell.” Major financial institutions have adjusted price targets while retaining positive ratings ahead of Oracle’s Oct. 29 Investor Day, with Goldman Sachs lowering its target from $240 to $206 with a “Buy” rating, and Barclays reiterating a “Buy” rating with a $252 target. The consensus average target price sits at $240.66.
