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The costs of Oracle’s AI data center expansion is becoming clear—and Wall Street isn’t happy. The software and cloud firm, which until recently was a solid moneymaker, said Wednesday it burned through $10 billion in cash in the November quarter thanks to a big ramp-up in capital expenditures on AI-focused data centers for its cloud business. Even more troubling for Wall Street: Oracle executives revealed on a conference call with analysts that this fiscal year’s capex would be 43% higher than the company projected last quarter, implying that the company would burn through much more cash in the full year than expected. Oracle shares fell as much as 11% in after-hours trading on Wednesday.
The fact that Oracle’s cloud revenues surged 68% in the quarter, meaningfully faster than in the past few quarters, didn’t seem to register with investors. Neither did Oracle’s revelation that it would generate $4 billion in additional revenue in fiscal 2027, starting in June, thanks to new cloud business it recently booked. That’s a meaningful lift given that analysts had projected fiscal 2027 revenue of $83 billion, according to S&P Global Market Intelligence. While investors last quarter cheered Oracle’s revelations that it had booked massive amounts of new cloud business, coming in through 2030, they’re now more focused on how Oracle will pay for the cost of bringing in that revenue.
Oracle co-CEO Clay Magouyrk tried to calm jitters, insisting that the company wouldn’t have to spend as much as analysts were projecting. He also said Oracle was considering ways of offering AI cloud services by leasing AI chips or by allowing customers to bring their own, both of which would reduce its capex. (He didn’t address whether that would also affect the revenue Oracle would get, but presumably that’s the trade-off.) But Magouyrk didn’t specifically answer a question from an analyst about how much money Oracle needs to raise for its data center expansion.
And investors aren’t just worried about costs. There’s also the uncertainty about whether the promised revenues in the 2029–30 time frame will materialize, given that Oracle’s future cloud business relies heavily on one customer in particular: OpenAI. No one knows whether the ChatGPT creator will need all the cloud commitments it has lined up with Oracle and others in the next few years—or whether it will be able to afford them. Oracle pointedly noted on Wednesday that it had recently struck deals with Nvidia, Meta Platforms and others to diversify its customer base. The company had previously announced deals with Nvidia and Meta, though, so news of those extra commitments may not be that reassuring. Oracle stock, after the 11% post-market slump, is now 39% lower than the high it reached in September. Investors will have to wait a while before Oracle stock once again trades at those September levels.
Score One for Paramount
Oracle founder Larry Ellison got better news on another front on Wednesday, related to a bid for Warner Bros. Discovery that his family’s Paramount Skydance is making. President Donald Trump said he wanted any sale of Warner Bros. Discovery to include CNN—which he claimed was run by “a very dishonest group of people” (a reference to people known as journalists).
On the face of it, that stance would seem to spell disaster for Netflix, which has a deal to buy WBD’s streaming operations and film studio but not its cable channels such as CNN. And it’s great news for the Ellison-controlled Paramount, which has offered to buy all of the company, including CNN. Notably, WBD stock jumped 4.5% to $29.53 today, putting it very close to Paramount’s $30 a share offer and well above what Netflix is offering.
To be sure, Trump can’t force anyone to buy something they don’t want to. But he doesn’t need to. The Department of Justice will review whatever deal is done, and there are potential antitrust issues with both Netflix’s and Paramount’s acquisitions of WBD. That makes it plausible that Trump’s opposition to the Netflix purchase—for whatever reason—could squelch that deal.
Netflix still has hope. The DOJ can’t block a deal by fiat: Its opposition to a merger has to be litigated before a court. The Trump administration lost its legal effort to block AT&T’s purchase of Time Warner in 2017–18, so it’s conceivable a DOJ suit to block the Netflix deal would fail. But given that Netflix is by far the biggest streaming service, and acquiring Warner would only strengthen its market dominance, such a suit would appear to stand a decent chance regardless of the politics.
In Other News
• Google has struck pilot partnerships with some news publishers allowing the tech giant to get expanded access to their content for testing of new experimental AI features, Google announced on Wednesday.
• Pinterest has saved 90% of the cost of using brand-name AI by relying on open-source models, according to its CEO, Bill Ready. Speaking in an interview on The Information’s TITV, Ready said open-source AI models were competitive with closed-source models developed by big tech companies at “really effective cost-to-performance levels.”
• Nvidia has developed a new software feature with a location verification technology that could indicate what country its chips are operating in, Reuters reported. The feature, which hasn’t been released yet, could make it possible for Nvidia to crack down on the smuggling of its AI chips into China, according to Reuters.
Today on The Information’s TITV
Check out our latest episode of TITV in which we speak with Pinterest CEO Bill Ready about the future of his company.
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