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Oracle Raises Restructuring Costs While Expanding AI Spending
Oracle is spending heavily to build AI and cloud services.
At the same time, it plans to cut some costs and jobs.
The company now expects its restructuring plan to cost about $2.8 billion.
Oracle says some of these changes are connected to using AI in its business.
Its future sales backlog grew to $664 billion.
However, Oracle is using a lot of cash and expects to raise money through debt and stock sales.
Some analysts believe the company’s AI business could grow quickly.
Other analysts worry that it may take years for the business to generate enough cash to support its expansion.
Investors showed both reactions, sending the stock higher early in the day before it closed lower.
Oracle raised its expected fiscal 2026 restructuring costs by about $700 million to roughly $2.8 billion.
The plan includes job cuts, severance, contract terminations and other exit expenses, partly linked to AI adoption.
Oracle’s revenue backlog increased by $26 billion to $664 billion, with about half expected to convert into sales within 36 months.
The company reported negative free cash flow of $5.40 billion and plans to raise $40 billion through debt and equity financing this fiscal year.
Oracle shares initially rose 7.8% but closed about 2% lower as investors weighed AI growth against debt and cash-flow concerns.
- Who
- Oracle, its investors and financial analysts.
- What
- Oracle increased its expected fiscal 2026 restructuring costs by about $700 million while continuing major AI and cloud investments.
- Where
- The filing and financial developments concern Oracle’s global cloud and AI business; the article also discusses data-center development in the United States.
- When
- The disclosure was made in a regulatory filing on Friday, after Oracle’s August quarter ended.
- Why
- Oracle is trying to control costs while expanding capacity to meet demand for AI services.
AI Growth Case
Financial Risk Case
Backlog and expansion
AI Growth Case
Oracle’s $664 billion backlog, upbeat first-quarter earnings and improving balance sheet suggest accelerating growth in its AI and cloud business.
Financial Risk Case
Much of the contracted revenue will require continued capacity expansion, and analysts said the cash-flow recovery may remain distant.
Funding the AI push
AI Growth Case
Customer prepayments and customers’ own chip supplies may reduce the amount of capital Oracle must provide for some new revenue.
Financial Risk Case
Oracle still faces risks from its debt load, financing needs, rising component costs and the profitability of its data centers.
Restructuring and AI adoption
AI Growth Case
Restructuring can help Oracle rein in costs while shifting resources toward growing AI demand.
Financial Risk Case
The plan includes job cuts and other exit costs, bringing expected restructuring expenses to roughly $2.8 billion.
Key facts
- Restructuring cost
- Approximately $2.8 billion expected for fiscal 2026, up about $700 million.
- Revenue backlog
- $664 billion, including a $26 billion increase.
- Expected backlog conversion
- About half is expected to become sales within 36 months.
- Free cash flow
- Negative $5.40 billion, according to Oracle’s reported results.
- Planned financing
- Oracle plans to raise $40 billion through debt and equity in the current fiscal year.
- Stock performance
- Shares rose as much as 7.8% before closing about 2% lower on Friday.
- Year-to-date stock change
- Oracle shares were down about 23%, compared with an almost 12% rise for the S&P 500.
Quotes
Evercore analysts
Analysts at Evercore
“(The) results were a solid step forward in balancing the investor discussion around a company delivering accelerating revenue growth, at scale. While the company's debt load is a valid concern, the positives in the business have gotten lost in the mix.”
livemint.com
“Despite Oracle asking customers to partially fund the technical hardware to alleviate its cash flow pressure, we do not foresee Oracle's cash flow profile changing anytime soon.”
livemint.com
Sources
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