Oracle Corp. (NYSE: ORCL) just dropped earnings that caught everyone off guard. Cloud sales came in lower than expected, and right after that, the company announced it would ramp up capital spending for 2026 by $15 billion, pushing the total to $50 billion focused on AI infrastructure. Shares opened down over 14%, and then trading as low as $186.23 after closing near $223 the day before, reflecting a sharp investor reaction to the news.
This move highlights how Oracle sees AI as the real growth engine, even when core cloud revenue lags. The company plans to pour that money into data centers and hardware tailored for AI workloads, a shift that analysts view as essential in a market where hyperscalers dominate. Morgan Stanley’s Keith Bachman noted the capex hike signals Oracle’s commitment to catching up in AI cloud services, trimming his price target from $260 to $240 but keeping a buy rating. Goldman Sachs echoed that sentiment, with his target cut to $230 from $250, stressing long-term AI potential outweighs near-term cloud softness.
Think about the context here. Oracle has built a solid base with its database software, but cloud competition from Amazon Web Services, Microsoft Azure, and Google Cloud has intensified. Disappointing cloud growth, especially in infrastructure as a service, underscores execution challenges in winning new enterprise deals. Yet, the $50 billion commitment frames this as a deliberate pivot. Oracle executives emphasized during the earnings call that AI demand requires upfront investment in GPU clusters and networking, positioning the firm to handle massive training jobs for generative models.
Wall Street’s response mixes caution with optimism. JPMorgan’s Mark Murphy lowered his target to $225 from $245, citing capex as a cash flow strain but praising Oracle’s multi-cloud strategy with partners like OpenAI. He believes the spending will fuel revenue acceleration by late 2026. BofA Securities stayed bullish too, with target at $255 post-cut from $270, arguing Oracle’s full-stack AI offerings give it an edge in regulated industries like finance and healthcare. Volume spiked over 30 million shares early, far above average, as traders digested the disconnect between current results and future bets.
Investors often punish surprises like this, but history shows big capex in tech can pay dividends. Oracle’s prior cloud buildout took years to mature, and analysts now project AI services could add tens of billions in high-margin revenue over time. The 14% drop wiped out recent gains, yet most firms maintain overweight ratings, with average targets around $240 suggesting 25% upside from current levels. This resilience points to faith in management’s vision.
Oracle’s path forward hinges on converting infrastructure into customer wins. Early deals with AI startups and hyperscalers provide proof points, and the company touted record AI contracts in the quarter. While cloud sales missed estimates by about 5%, total revenue beat slightly, buoyed by software licenses. Free cash flow remains robust at over $20 billion annually, covering the capex surge without immediate dilution risks.
Critics might question the timing amid economic uncertainty, but supporters see it as proactive. Oracle joins peers like Microsoft and Google in a capex arms race, where falling behind means losing AI leadership. Analyst consensus holds that execution on these investments will define Oracle’s next chapter, with earnings growth forecasted at 15% annually through 2028. The market’s knee-jerk selloff may create an entry point for those betting on AI’s transformative power.
