In a third-quarter earnings report on Tuesday, tech giant Oracle announced quarterly revenue growth above expectations and an increased sales outlook for the next fiscal year, along with a downsizing of some of its teams.
The stated reason why, as has become somewhat customary in Silicon Valley at this point, was artificial intelligence.
“AI models for generating computer code have become so efficient that we have been restructuring our product development teams into smaller, more agile and productive groups,” the company shared in the press release. “This new AI Code Generation technology is enabling us to build more software in less time with fewer people.”
Oracle’s stock has been battered recently, tanking more than 50% since a September peak that happened following the announcement of more data center plans with OpenAI under Stargate. Although Oracle shares once hit highs so grand on the coattails of the AI trade that it briefly turned its chairman Larry Ellison into the richest man on Earth, the culprit driving the drop is also artificial intelligence. Wall Street fears the impact AI will have on Oracle, whichever way demand for the technology may grow.
One aspect of that is the billions upon billions of dollars Oracle is committing to a major data center buildout. Just this fiscal year, the company is looking to spend $50 billion, roughly double what it spent a year earlier.
But with delays hitting some of these data center projects and the company’s increased reliance on debt markets, experts grew uneasy about Oracle’s ability to live up to its hefty commitments.
Meanwhile, the financial commitments have turned the company’s free cash flow negative. This past quarter, free cash flow sank to negative $24,736. Experts predict it will stay negative until 2030.
In a crunch for cash, company executives have begun planning thousands of job cuts across the company, starting as early as this month, according to a Bloomberg report from last week, including effectively freezing hiring in its cloud division.
Oracle is a bellwether for market confidence in AI, and the free cash flow question quickly infected other major players in the industry. AI hyperscalers Amazon, Alphabet, Meta, and Microsoft all reported eyewatering capex figures in earnings reports last month, sparking a fear that the spending is accelerating rapidly while actual returns from AI adoption fail to materialize. Those fears added to the growing AI bubble discussion, even pushing Nvidia CEO Jensen Huang to spend a good chunk of his company’s earnings call assuring investors that the hyperscalers (who are also incidentally Nvidia’s top customers) will see cash flow growing as more spending translates to revenue.
Oracle’s earnings beat, along with improved sales guidance for 2027, are important for convincing investors that demand for AI will continue to outpace supply. That, combined with the assurance that AI is raising productivity in the company, could help Oracle quell some of those fears around the future of both the company and the AI trade.
The other side of the AI impact coin is if AI becomes too powerful and makes software companies obsolete, in a feared “SaaSpocalypse.” Last month, on the heels of Anthropic’s Claude Cowork release and a Substack scenario outlining this possibility, investors began selling software provider stocks in a frenzy. Oracle was one of the software stocks impacted, but executives took to the earnings call on Tuesday to convince investors that their company was an exception.
“The use of AI-coding tools inside Oracle is enabling smaller engineering teams to deliver more complete solutions to our customers more quickly. We are building brand-new SaaS products using AI and also embedding AI agents right into our existing applications and suites,” co-CEO Mike Sicilia told investors. “Yes, some smaller or single-focus SaaS players may well be disrupted, but Oracle will not be among them.”
With regard to either story, investors may have been satisfied enough for now with Oracle’s response on Tuesday, as the stock rose more than 8% following the release.
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