Oracle Stumbles on AI Spending but Investors Stay Bullish

What Is Oracle?  What Has Happened?

Oracle Corporation is one of the world’s largest enterprise software and cloud computing companies, known for its database systems, cloud infrastructure (OCI), and increasingly, its artificial intelligence partnerships and services. 

In 2025, Oracle has emerged as a significant player in the global AI infrastructure race, largely because of its expanding role as a cloud-computing partner for major artificial intelligence developers. 

Central to this has been its reported multi-billion-dollar contract with OpenAI, the creator of ChatGPT, under which OpenAI is expected to purchase hundreds of billions of dollars’ worth of cloud computing capacity from Oracle over the next several years.

This arrangement — part of a broader industry effort to build massive AI data centre capacity — helped position Oracle as a potential “go-to” provider of the raw computing power that AI models require at scale.

The deal forms part of the larger “Stargate” initiative, a joint effort involving OpenAI, Oracle, and partners such as SoftBank, aimed at investing up to half a trillion dollars in AI infrastructure — including tens of gigawatts of computing capacity — to support the next generation of AI workloads.

 As part of this plan, Oracle has been building out data centres capable of handling the intense compute demands of large-scale models, delivering specialised hardware and cloud services that facilitate AI training and inference.

This high-profile partnership had previously bolstered investor enthusiasm, as markets interpreted it as a sign that Oracle could capture a significant share of the lucrative AI cloud-services market, which had been previously dominated by competitors such as Amazon Web Services, Microsoft Azure, and Google Cloud. 

However, the sheer scale of the expected commitments — and the fact that much of the deal’s value is dependent on future demand and spending by OpenAI — has also raised questions among analysts and investors about profitability and financial risk.

According to Reuters, “the latest concerns centred on Oracle: Its shares slumped as much as 16.5% on Thursday, a day after the company, which has taken on debt to finance its ambitious AI spending, warned capital expenditures for fiscal 2026 are now expected to be $15 billion higher than it estimated in September. After the bell, adding to negative sentiment, Broadcom AVGO.O cautioned that margins would fall due to a higher mix of AI revenue, sending shares lower in after-hours trading."

How It Affects Stock Trade and the Broader Market

Oracle’s sharp drop rippled through the markets, especially in technology and AI-linked stocks. 

Oracle’s disappointing results triggered a broader pullback across the AI sector, leading investors to reassess the sustainability and valuation of the entire industry. According to The Economic Times, major AI-linked stocks, including Nvidia, AMD, Micron, Broadcom, and Arm Holdings, fell between 3.1% and 4.2%, dragging the tech-heavy Nasdaq to a one-week low. 

This reaction shows that concerns over Oracle’s heavy spending and slower-than-expected returns have spilt into the wider market, prompting fears that AI valuations may be overstretched. 

The decline across multiple chipmakers — key drivers of the AI boom — signals that the market may be shifting into a more cautious “show-me” phase, where investors increasingly demand proof of profitability rather than relying on optimism alone.

Despite the drop in Oracle and other AI-linked stocks, the broader market has remained strikingly resilient. 

Major U.S. indexes, including the S&P 500, have continued to notch new record highs, supported by strong performance in sectors such as financials, energy, consumer goods, and healthcare. 

This suggests that the weakness in tech — while sharp — is concentrated rather than systemic, reflecting concerns specific to AI valuations and spending rather than a wider loss of confidence in the economy. 

As The Economic Times notes, broader economic optimism, steady corporate earnings, and expectations of a healthy macro outlook have helped offset the volatility in the AI-heavy corners of the market. 

In other words, while the AI trade may be wobbling, the foundation of the U.S. market remains solid, signalling that investors still see room for growth even as they reassess the most overextended parts of the tech sector.

Investor Reactions

Investors have responded to Oracle’s results and guidance with a wide range of reactions. On the one hand, many have punished the stock aggressively by selling shares, reducing bond exposure, and driving up the cost of insuring Oracle’s debt, as credit-default swaps hit multi-year highs amid anxiety over the company’s debt-financed AI spending. 

Traders interpreted the spike in credit-default swap prices as a clear signal that risk perceptions around Oracle’s balance sheet are intensifying.

Some analysts highlighted the market’s sensitivity to the company’s capital expenditure guidance. As Citi analyst Tyler Radke noted, Oracle’s planned debt issuance and accelerated spending on cloud data centres have spooked investors, underscoring that even a slight revenue miss combined with massive AI capex can provoke outsized stock reactions.

Meanwhile, brokerages such as UBS lowered Oracle’s price target, citing doubts about how quickly its backlog of future contracts will convert into revenue, while maintaining a constructive long-term view.

Comments from the market capture this dichotomy. eToro’s Farhan Badamin told Reuters that the situation will be “a question of patience for investors,” suggesting that the AI boom won’t be an overnight success and short-term margin pressure is expected, yet recognising that strong demand underlies the strategy.

At the same time, not all investors have abandoned the company. Some market strategists argue that the aggressive spending reflects the scale of demand in AI and cloud infrastructure, with one Wedbush analyst describing Oracle’s AI backlog as a “high-class problem” that reflects robust demand rather than structural weakness.

Despite the recent pullback, many investors remain bullish on Oracle and the broader AI trade. According to The Economic Times, the decline is largely viewed as a temporary, company-specific correction rather than a signal of a wider downturn. 

Analysts and institutional investors note that demand for AI infrastructure and cloud services remains strong, and Oracle’s large-scale partnerships — including its multi-billion-dollar OpenAI deal — position the company to benefit from the next generation of AI workloads. 

For some, the sell-off represents a potential entry point, while the broader market’s resilience, including record levels in major indexes, reinforces confidence that AI-driven growth stories remain viable. 

Overall, investor sentiment has become more discerning: heavy AI spending is now scrutinised rather than automatically rewarded, forcing market participants to balance optimism about AI’s transformative potential with caution over financial execution and risk.