Oracle's stock dropped after it reported mixed earnings for Q4 of fiscal 2026, with adjusted earnings per share at $2.11, exceeding estimates, but concerns arose from weak software sales. Despite an increase in revenue to $19.2 billion, guidance for Q1 fell short of expectations. The company plans $70 billion in capital expenditures and expects $40 billion in revenue from its cloud segment, which is seeing significant growth, particularly in Oracle Cloud Infrastructure (OCI). However, traditional software sales are declining. The company faces challenges in transitioning to AI-driven models and maintaining financial health as it incurs higher debt from capital investments. Margins are under pressure despite some operating expense efficiencies.

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Oracle Stock Slides on Mixed Earnings. Software Is an Issue.

By Adam Levine

Updated June 10, 2026, 5:57 pm EDT / Original June 10, 2026, 1:00 am EDT

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An Oracle campus in Redwood Shores, Calif. (Justin Sullivan/Getty Images)

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ORCL\ \ -2.21% shares were sliding in late trading on Wednesday after the company reported mixed earnings results for its fiscal fourth quarter. Weakness in the company’s software results may be feeding into the negative narrative on the sector.

Oracle also said that its capital expenditures for the current fiscal year would be around $70 billion, plus another $20 billion to $25 billion paid directly by customers. In its just ended fiscal 2026 year, Oracle’s capex was $56 billion, up from $21 billion in fiscal 2025.

The company said Wednesday that it would raise another $40 billion in fiscal 2027, all of it next calendar year.

For the fourth quarter quarter, Oracle reported adjusted earnings per share were $2.11, above Wall Street’s consensus estimate of $1.96 and up from $1.70 last year. Revenue for the quarter reached $19.2 billion, ahead of expectations of $19.1 billion, and up 21% on the year.

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But Oracle’s revenue guidance for the fiscal first quarter was a little short of the Wall Street consensus, and the company kept its annual sales outlook unchanged at $90 billion.

Shares were down 6.2% in after-hours trading.

With sales of its business software stalling, in 2019 Oracle began running the Microsoft

MSFT\ \ -1.50% cloud-pivot playbook. It started transitioning software customers to cloud-based versions based on subscription sales, while at the same time renting out servers in the cloud.

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Oracle Cloud Infrastructure, or OCI, is the server rental unit, and it was again the star of the show in the fourth quarter. Sales of $5.8 billion edged out expectations and were up 93% since last year.

The software transition had been going well with double-digit revenue growth in cloud applications, offset by slow-but-steady losses from its legacy applications. But what had been a positive narrative for Oracle has become a negative. Both parts of Oracle’s software business were disappointments. Its legacy software sales declined by 2%, and cloud software also underperformed expectations. Together, revenue was only up 2% to $11 billion.

“I would say maybe a couple quarters ago, there were some delayed decision cycles out there as customers thought through that,” co-CEO Mike Sicilia said on the earnings call. “But particularly in the mission critical system space—which is where we play at Oracle—people have quickly moved on and realized that enterprise software, particularly when you have AI built into our SaaS solutions, is certainly a very good approach and is necessary to move forward for the modernization and protection of their businesses.”

The entire software-stock complex is being disrupted by the idea that AI will drive a stake through the user-based subscription model. For the year, the iShares Expanded Tech-Software Sector ETF is down 13%, while the S&P 500 index rose 8%.

This quarter did nothing to counter that narrative.

The cloud is working, though. Oracle has a $638 billion backlog as of three months ago, over half of which is a single multiyear OCI contract with OpenAI.

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This and other cloud deals are predicated on continued exponential growth of demand for AI cloud computing over the next four years—particularly at OpenAI—and that’s far from guaranteed. There’s also execution risk as Oracle fights everyone else for the land, buildings, power and chips needed for AI data centers. There have already been hiccups in the buildout, and more may be on the horizon.

In fiscal 2030, the company expects OCI revenue to rise to $166 billion, about three-quarters of total sales, which would transform it from a legacy software company into an AI infrastructure company.

It comes at a cost. Software is a low-asset business with high free-cash-flow margins. OCI is a lower-margin business with extraordinary upfront capital expenditures. Free cash flow has shrunk for Oracle and the deficit is being filled by debt and equity sales. Fourth-quarter debt and lease liabilities rose 50% from last year to $156 billion, and the company had another $261 billion in lease liabilities that hadn’t commenced as of February.

OCI growth is weighing on gross margin, down 5 percentage points since last year, but that was offset by operating expense savings from layoffs and other efficiencies. Adjusted operating margin had been declining, but in the fourth quarter rose to 45% from 43% the previous quarter.

Write to Adam Levine at adam.levine@barrons.comExternal link

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Updated June 09, 2026, 2:49 pm EDT / Original June 09, 2026, 11:36 am EDT

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