How I Made $5000 in the Stock Market

Oracle Stock Hasn’t Dropped Like This Since the Dot-Com Bust. What’s Driving the Selloff.

Dec 10, 2025 02:30:00 -0500 by Adam Levine | #Technology #Earnings Report

Shares of Oracle are down 9% over the past three months. (Justin Sullivan/Getty Images)

Key Points

Oracle stock tumbled after the company reported second-quarter earnings that came in well above projections. Financial guidance that came in short of estimates and increased spending on artificial-intelligence infrastructure look to be worrying investors.

Adjusted earnings per share were $2.26, well ahead of Wall Street’s consensus estimate of $1.64, up from $1.47 last year. The big beat was largely driven by the company’s sale of its interest in the Ampere chip company to SoftBank for $2.7 billion, boosting pretax earnings by 91 cents a diluted share.

Revenue for the quarter reached $16.06 billion, shy of expectations for $16.19 billion, and up 14% on the year.

Oracle’s multiyear backlog swelled to $523 billion, up $68 billion from last quarter. This is a key metric for Oracle’s transition into a cloud company.

For a decade, the company’s legacy business software sales grew slowly but had high profit margins. Five years ago, Oracle began implementing the Microsoft cloud strategy: moving customers to cloud-based software and building out rentable data center infrastructure to compete with Amazon Web Services.

Building data centers is an expensive business. Oracle reported a record $12 billion in capital expenditures in the quarter ended in November, compared with the $8.4 billion Wall Street was expecting. It boosted its full-year capex forecast from $35 billion to $50 billion.

Oracles shares were down 14% at $191.38 in early trading, putting the stock on pace for its largest percentage fall since March 2002. While the stock fell in response to the earnings release, the loss worsened following the company’s earnings call.

Other AI-exposed stocks were also dropping. Shares of the AI cloud company CoreWeave were off 6.6%. Super Micro Computer, a provider of servers, and the chip maker Nvidia both fell 3%.

Cloud now constitutes almost half of Oracle’s revenue, just shy of $8 billion in the quarter and up 34% from last year. The part of the business that rents out servers in the cloud saw revenue jump by 68%.

The rest of Oracle—its legacy packaged software business—saw revenue decline by 1% over the year.

Oracle’s pitch to customers is that they can use proprietary data that is already in Oracle’s leading database software and use it for AI.

“Training AI models on public data is the largest, fastest-growing business in history,” said founder and chairman Larry Ellison. “AI models reasoning on private data will be an even larger and more valuable business. Oracle databases contain most of the world’s high value private data.”

Created with Highcharts 9.0.1Oracle’s SlideORCL / NYSESource: FactSet

Created with Highcharts 9.0.1Oct. 2025Dec.180200220240260280300320$340

But cloud has lower profit margins than the legacy software, and that is weighing on adjusted operating margin, which declined from 43.4% last year to 41.9% in the second quarter.

“We continue to be concerned over the impact of mix shift on Oracle’s long-term profitability,” wrote D.A. Davidson analyst Gil Luria in a research note. “Management attempted to clarify the underlying margin profile targets of 30-40% and reiterated prior comments that Oracle does not incur expenses until the infrastructure is built and running.”

Luria lowered his target price on the stock to $180 from $200 and kept a Neutral rating.

Cloud is also driving Oracle’s capital expenditures to new levels—$35 billion over the past 12 months—resulting in free cash losses of $13 billion.

“The success of the OCI [Oracle Cloud Infrastructure] ramp is necessitating substantial cloud infrastructure Capex investments, negatively impacting free cash flow, which hinders an important valuation backstop, but ultimately we view this as a trade-off for potential revenue growth in the longer term,” wrote J.P. Morgan analyst Mark Murphy in a research note.

Murphy kept a Neutral rating on the stock but lower his price target to $230 from $270.

Since Oracle’s last earnings report three months ago, the stock has had a rocky ride. Shares initially jumped 36% on news that the company’s backlog had risen by over $300 billion. But then came the wrinkle that the huge increase was driven by a single contract with OpenAI, a loss-driven AI start-up that doesn’t have $300 billion and faces an unclear path in raising it. Oracle stock is down 33% since that news.

“Oracle has inked enough business to satisfy investors—that’s what the step-function upward was about in September—but the ability or probability of executing on those agreements has taken a hit,” wrote KeyBanc analyst Jackson Ader in a research note. He lowered his price target on the stock to $300 from $350, while maintaining an Overweight rating.

The shift to cloud infrastructure is accelerating because of the OpenAI contract and the related Project Stargate, an effort to spend half a trillion dollars on new U.S. data centers that includes Oracle. The first of these new data centers opened in September.

In the process of becoming a cloud infrastructure provider, Oracle is reshaping its balance sheet and cash flows. It added $18 billion in debt in September, and it will have to finance a lot more to fulfill its cloud customer contracts. The price of Oracle’s debt is falling, while prices for credit default swaps—insurance against defaults—are rising.

The trend had relaxed in December, but Oracle credit default swap prices began rising again after the earnings release.

When queried about the financing Oracle would need for this buildout, CEO Clay Magouyrk said it would be less than the $100 billion that some Wall Street analysts have modeled. “We’re committed to maintaining our investment grade debt rating.”

Write to Adam Levine at adam.levine@barrons.com and Adam Clark at adam.clark@barrons.com