Oracle is facing an exceptionally challenging earnings season. Amid ongoing market concerns about AI capital expenditures, this enterprise software giant finds itself in a dilemma—increasing spending exacerbates debt and cash flow pressures; cutting spending raises new doubts about its competitive capabilities.
Oracle's stock price has fallen 54% since reaching an all-time high on September 10 last year, making it the worst-performing stock among S&amp;P 500 constituents during the same period. The last time Oracle experienced a decline of over 50% was during the burst of the internet bubble, and it took several years to fully recover.
After the U.S. stock market closes on Tuesday, Oracle will announce its third-quarter results. According to Bloomberg consensus estimates, earnings per share are expected to grow by about 30% year-on-year, with revenue growth of about 20%, and cloud infrastructure sales are expected to surge by 82%. However, capital expenditures for fiscal year 2026 are expected to exceed $50 billion, with free cash flow remaining negative; these figures make it difficult for investors to easily accept the bright performance.
&#34;This is a catch-22 situation,&#34; said Peter Andersen, Chief Investment Officer of Andersen Capital Management, which manages about $4.5 billion in assets. He pointed out that if Oracle maintains high AI spending, it will raise concerns about financial leverage and the balance sheet; if it cuts spending, it will lead the market to question its strategic ability to compete with large rivals.
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<h2>Good earnings may not be effective: Microsoft and Amazon have set a precedent</h2>
Microsoft and Amazon provide the most direct reference for Oracle. Both companies previously reported better-than-expected quarterly results, but their stock prices were sold off after earnings due to concerns about AI capital expenditures. The market logic is clear: in the current sentiment, strong growth numbers are not enough to offset fears of capital consumption.
Although Oracle's cloud infrastructure sales are expected to increase by as much as 82% year-on-year this quarter, the market may be more focused on management's statements regarding future capital expenditures. In a context where the market is highly vigilant about AI narratives, any signals of unexpected spending may be interpreted as amplified.
Peter Andersen stated that he currently does not hold Oracle shares, but if the company lowers capital expenditures and the stock price continues to decline, he would consider entering. This statement reflects the current market's contradictory psychology—good news struggles to drive buying, while bad news is enough to trigger selling.
<h2>Cash flow under pressure: the weight of $50 billion in capital expenditures</h2>
Oracle's gamble on AI infrastructure is sharply deteriorating its financial data. Last quarter, the company's free cash flow was approximately negative $10 billion, setting a record low; this quarter is expected to record approximately negative $7.3 billion
Fiscal Year 2025 marks the first time Oracle has reported negative free cash flow since 1990, and this situation is expected to persist at least until Fiscal Year 2028.
In terms of capital expenditures, Oracle expects to spend over $50 billion in Fiscal Year 2026 (ending this May), more than doubling the previous fiscal year's spending; by Fiscal Year 2029, this figure is expected to exceed $85 billion. To fund its cloud infrastructure expansion, the company plans to raise up to $50 billion this year through a combination of debt and equity financing.
These pressures have raised warning signals in the credit market. Oracle's five-year credit default swap (CDS) spreads recently reached their highest level since January 2009, directly reflecting the market's heightened vigilance regarding its leverage risk.
Brian Mulberry, a portfolio manager at Zacks Investment Management (which holds Oracle stock in several portfolios), stated:
<blockquote>
&#34;The market is assessing whether these debt burdens and expenditures will lead to future growth, and this concern must be taken seriously. As long as Oracle can demonstrate that spending will ultimately translate into positive cash flow and contribute to profitability, I think it is manageable, but it still requires ongoing attention.&#34;
</blockquote>
<h2>Project Delays and Layoffs: AI Expansion Strategy Faces Uncertainties</h2>
Oracle's AI expansion plans have recently encountered new uncertainties. According to media reports last week, Oracle has put its plans to expand its flagship AI data center in Texas on hold due to financing issues and changes in OpenAI's own needs.
Meanwhile, it has been reported that the company also plans to lay off thousands of employees to manage the cost pressures arising from AI development.
Notably, Oracle's quarterly earnings performance will also influence the direction of another massive deal: in the $111 billion acquisition of Warner Bros. Discovery by Paramount Skydance, Oracle Chairman Larry Ellison provided $45.7 billion in equity guarantees through a personal trust fund, which primarily holds Oracle stock.
<h2>Valuation Returns to Historical Average, Analysts See Buying Opportunity</h2>
One byproduct of this recent decline is that Oracle's valuation has returned to a relatively reasonable range. Based on expected earnings, the current price-to-earnings ratio is about 19 times, significantly lower than the over 45 times peak in September last year, and not far from its 10-year average of 17 times, making it increasingly attractive.
Wall Street analysts maintain an overall optimistic stance. Oracle's 12-month average target price is approximately $260, with a closing price of about $152 on Monday, implying a potential upside of about 71%—one of the highest implied return rates since data has been recorded in 2003
Jefferies analyst Brent Thill wrote in a research report on March 5: &#34;We believe the market may be underestimating Oracle's upside potential and growth catalysts. We see this as an attractive positioning opportunity, supported by a re-acceleration growth story, a highly profitable core software business, and relatively low long-term erosion risk from AI.&#34;
Brian Mulberry shares a similar view, stating:
<blockquote>
&#34;The market's enthusiasm for AI spending has faded, but as long as data centers continue to be built, we remain confident in our growth expectations. As stock price momentum is digested, true value is emerging, presenting a buying opportunity.&#34;
</blockquote>
Risk Warning and Disclaimer
The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at one's own risk

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Oracle faces challenges in the earnings report season, with its stock price down 54% since September last year. Market concerns over AI capital expenditures have intensified; increasing spending would add financial pressure, while cutting spending raises questions about competitiveness. The third-quarter results will be announced on Tuesday, with an expected 30% growth in earnings per share and a 20% increase in revenue, but capital expenditures are expected to exceed $50 billion, with negative free cash flow. The market has reacted lukewarmly to strong performance, focusing on future capital expenditure statements

- Oracle faces a challenging earnings season as concerns over AI capital expenditures grow.  
- The company’s stock has dropped 54% since its record peak in September 2022, and despite impressive revenue forecasts, worries about cash flow and high capital spending persist.  
- Analysts suggest that while Oracle's valuation appears more reasonable now, the market remains cautious about its financial strategy amid rising costs and uncertain AI expansion plans.

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The AI bubble theory has not dissipated, and Oracle's stock price has already halved: no financial report tonight can save it?