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Oracle eases AI spending worries with plan to turn cash flow positive

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In short

Oracle pledged to cap additional financing at $20 billion through fiscal 2030 to complete its cloud expansion, splitting the funding evenly between debt and equity through fiscal 2027. The financial discipline directly addresses concerns over heavy borrowing, as the company held $125.34 billion in notes payable and borrowings as of August 31. Free cash flow is anticipated to turn positive in the second half of fiscal 2028 before exceeding $30 billion the following year. Long-term forecasts remain ambitious, with management projecting fiscal 2030 revenue to surpass $225 billion alongside an operating margin above 40 percent.

Key points

  • Capital expenditure will peak over the next two fiscal years before turning free cash flo…: Capital expenditure will peak over the next two fiscal years before turning free cash flow positive in late fiscal 2028.
  • Partnerships with entities like OpenAI are expanding the cloud backlog while management e…: Partnerships with entities like OpenAI are expanding the cloud backlog while management enforces debt limits to protect the balance sheet.
  • The company established an ambitious fiscal 2030 roadmap targeting more than $225 billion…: The company established an ambitious fiscal 2030 roadmap targeting more than $225 billion in revenue and adjusted earnings topping $21 per share.

Sources checked by our analysis pipeline: 1

Oct 28 : Oracle said it expects capital spending to peak this fiscal year and next as it builds more cloud capacity, but pledged to raise no more than $20 billion in additional financing 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 AI buildout. Oracle shares jumped over 8 per cent on the forecast, while other cloud stocks also rose.

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 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.

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," CFO Maxson said on Wednesday. "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," she added.

For fiscal 2030, the company forecast revenue of more than $225 billion, an adjusted operating margin above 40 per cent 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.

Original source: www.channelnewsasia.com

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