Oracle Unveils Plan to Turn Cash Flow Positive Amid Aggressive AI Spending
By Aditya Soni and Anzar Mehraj
Oracle's Strategic Financial Outlook and AI Infrastructure Investment
Capital Spending and Financing Plans
Oct 28 (Reuters) - Oracle said on Wednesday it expects capital spending to peak this fiscal year and next as it builds more cloud-computing capacity, but pledged to raise no more than $20 billion in additional financing for AI through fiscal 2030.
The pledge is meant to reassure investors worried that Larry Ellison's company will need ever-larger sums of outside money to fund its aggressive data-center buildout. Oracle shares jumped over 12% on the forecasts, while other cloud stocks also rose.
Free Cash Flow Projections
Speaking at Oracle's investor day in Las Vegas, CFO Hilary Maxson said Oracle also expects free cash flow to turn positive in the second half of fiscal 2028 and top $30 billion in fiscal 2029, when capital spending is set to decline.
"Oracle is trying to show investors that there's a method to the madness of its massive AI infrastructure spending," Emarketer analyst Jacob Bourne said.
"Though the projections are ambitious and far from guaranteed, they demonstrate an understanding of investors' concerns and offer an optimistic path toward addressing them."
AI Infrastructure and Partnerships
Oracle has become a focal point of worries about the soaring cost of AI infrastructure because it lacks the deep revenue base of cloud giants such as Microsoft and Amazon and relies heavily on a single customer, loss-making ChatGPT creator OpenAI.
The partnership with OpenAI has added hundreds of billions of dollars to Oracle's cloud backlog, but building the data centers and other AI infrastructure needed to fulfill those contracts has forced it to lean heavily on debt and stock sales.
Plans to Cut Back on Outside Financing
PLANS TO CUT BACK ON OUTSIDE FINANCING
Oracle said on Wednesday it expects vendor financing, customer-provided hardware and customer pre-payments to reduce its upfront cash needs until free cash flow turns positive.
It expects to stop relying on outside funding for growth from fiscal 2029, with net debt forecast to fall below 3.5 times its annual core earnings that year.
Debt and Equity Financing Details
The company said earlier this year it would raise $40 billion through debt and equity financing in its current fiscal year, including the $20 billion stock sale it completed in the first quarter.
It had $125.34 billion in notes payable and other borrowings as of August 31, while cash and cash equivalents totaled around $36.37 billion.
"I've told you we need an additional up to $20 billion in funding for the remainder of our fiscal 2027," Maxson said.
"We're announcing that this $20 billion, split evenly between debt and equity, is the final amount needed to fund the remainder of this cycle."
Market Reaction and Future Outlook
Oracle's five-year credit default swaps, which measure the cost of insuring against a default on its debt, were down marginally at 287.2 basis points on Wednesday.
Maxson's remarks lifted shares of AI cloud and infrastructure companies after weeks of selling pressure over worries that the AI boom is becoming too dependent on debt.
CoreWeave, Nebius, Applied Digital and Iren gained between 2.1% and 5%.
Long-Term Revenue and Earnings Forecasts
For fiscal 2030, Oracle forecast revenue of more than $225 billion, an adjusted operating margin above 40% and adjusted earnings of more than $21 per share. It reaffirmed its fiscal 2027 forecast of more than $90 billion in revenue and adjusted earnings of $8.10 per share.
(Reporting by Aditya Soni and Anzar Mehraj in Bengaluru, additional reporting by Deborah Sophia and Niket Nishant; Editing by Arun Koyyur, Maju Samuel and Leroy Leo)
