According to CNBC, Oracle’s stock plummeted 11% after its fiscal second-quarter earnings report disappointed Wall Street. The company reported revenue of $16.06 billion, missing the $16.21 billion consensus estimate, while its software revenue fell 3% to $5.88 billion. Perhaps more jarring was the free cash flow figure, which was negative by about $10 billion for the November quarter, far worse than the expected negative $5.2 billion. This messy report left analysts confused, with Morgan Stanley putting its price target and estimates “under review.” Many other firms cut their targets, citing uncertainty around how Oracle will convert its massive backlog into profitable revenue, especially as it spends heavily on AI infrastructure.
The AI Spending Problem
Here’s the thing: Oracle is in a classic “build it and they will come” phase, but Wall Street hates paying the bill before the guests arrive. The company is pouring billions into capital expenditures—$12 billion last quarter alone—to build out its cloud infrastructure for AI workloads. Revenue from that OCI business grew 69%, which sounds great, but it was only in-line with expectations. So you have this massive cash burn with a revenue conversion that’s, well, fine. Not amazing. Bank of America’s analyst nailed it, saying the stock move shows Oracle is “now paying the price to invest in AI infrastructure growth.” The timing mismatch is painful. Investors are basically being asked to fund a huge construction project with only a promise that the tenants will show up and pay rent later.
Bullish Despite The Mess?
And yet, look at those price targets. Even after cuts, they’re almost universally above the current stock price, with some, like Citi’s $370 and Deutsche Bank’s $375, implying upside of over 65%. That’s the real confusion. The quarter was objectively messy, but the long-term thesis remains intact for most analysts. They’re clinging to the “compelling” $52 billion deal backlog and the “unique” acceleration story. Bernstein’s analyst said it’s “a great story that will take longer for investors to wrap their minds around.” I think that’s a polite way of saying the story is currently too complex and lacks the hard numbers investors crave. When you’re spending this much, “trust me” isn’t a great financial model.
The Harsh Reality Check
So why the harsh sell-off if everyone’s still so bullish? The report was a reality check. Morgan Stanley’s Keith Weiss pointed out the negative reaction signals investors are “losing confidence” in Oracle’s ability to execute profitably. The assurances from management were vague. They said cash required would be under $100 billion and “likely meaningfully less.” That’s not a number you can hang your hat on; it’s a wide-range guess. Combine that with missed revenue and shocking cash flow, and you get a 11% plunge. It’s a warning shot. The market is saying, “Show us the money, literally.” Until Oracle can demonstrate that its AI bet is accretive to earnings and free cash flow—not just revenue—this overhang and volatility will persist. Wells Fargo called it a “bumpy ride,” and that might be the understatement of the quarter.
