Oracle stock slips on AI spending concerns, why analysts still see upside

Oracle shares fell on Tuesday as investors weighed the growing costs of artificial intelligence infrastructure, even as analysts remained broadly positive on the company's long-term prospects ahead of its upcoming earnings report.

ORCL stock declined 3.1%, reversing part of Monday's 9.9% rally that had pushed shares to their highest level since November.

The pullback came as markets reacted to Alphabet's announcement that it plans to raise USD 80 billion (approx. $116.6 billion) through a stock sale to fund AI infrastructure investments, highlighting the enormous capital requirements facing companies competing in the AI race.

Alphabet said the proceeds, including a USD 10 billion (approx. $14.6 billion) investment from Berkshire Hathaway, would be used to expand its AI compute infrastructure.

The company also updated its full-year capital expenditure outlook in April, projecting spending of as much as USD 190 billion (approx. $276.9 billion).

The announcement renewed investor focus on whether other technology companies, including Oracle, may need to commit significantly more capital to support future AI-driven growth.

AI infrastructure costs remain in focus

Investor attention is increasingly shifting from AI demand to the costs required to support that demand.

Scotiabank analyst Patrick Colville believes Oracle's future capital expenditure requirements could ultimately exceed current Wall Street expectations.

Ahead of Oracle's fiscal fourth-quarter earnings report, scheduled for Wednesday, Colville identified spending plans as one of the most important issues investors will be watching.

Although he described himself as "a bit cautious" ahead of earnings, Colville maintained a positive longer-term view of the company.

The analyst argued that Wall Street's fiscal 2027 capital expenditure forecasts for the company may be too low.

He estimates Oracle could spend nearly USD 100 billion (approx. $145.7 billion) during the period, significantly above the current consensus estimate of approximately USD 71 billion (approx. $103.5 billion).

According to Colville, hardware inflation could be a key driver of higher spending, with costs potentially rising around 15% as Oracle continues expanding its cloud infrastructure footprint.

Importantly, Colville said the higher spending estimate does not reflect weaker business conditions or slowing demand.

Instead, he believes additional investment may be necessary to support the cloud growth projections already embedded in analyst forecasts.

UBS sees continued momentum ahead of earnings

Despite concerns about rising investment requirements, UBS remains constructive on Oracle's outlook.

The firm raised its price target on Oracle shares to $285 from $250 while maintaining a Buy rating.

UBS analyst Karl Keirstead cited continued business momentum ahead of next week's earnings release.

Keirstead said the firm reviewed feedback from four large customers and partners, along with a contractor involved in the company's AI data center project in Abilene, Texas.

According to UBS, the research found no indication that Oracle's growth momentum is slowing.

The firm noted that it values Oracle at 27 times calendar year 2027 non-GAAP earnings per share and remains positive on the broader long-hyperscaler investment theme.

Oracle shares have already posted strong gains this year, rising 28.1% year-to-date and 28.5% over the past week.

Analysts remain positive despite near-term uncertainty

Colville acknowledged that investors still have limited visibility into the structure of Oracle's customer agreements and future infrastructure economics.

Nevertheless, he said he feels comfortable with his forecasts, pointing to management commentary indicating that development projects remain "on schedule or ahead of expectations."

The analyst also believes Oracle has opportunities to offset some of the cost pressures associated with hardware inflation.

His model incorporates approximately USD 800 million (approx. $1.2 billion) in annualized operating expense savings from workforce reductions, leading him to modestly increase his fiscal 2027 earnings estimates.

Looking ahead, Colville expects Oracle shares could remain volatile as investors assess earnings results, spending plans, and management commentary.

However, he remains constructive on the company's longer-term outlook, arguing that the "risk/reward skews to the upside" for investors willing to maintain a longer investment horizon.

More broadly, Colville believes Oracle's GPU-as-a-service offerings, customer-neutral approach, and access to funding position the company well to benefit from growing demand for AI infrastructure in the years ahead.