Oracle’s conference call exacerbated the two biggest reasons why investors are worried about its future

Investors had concerns about Oracle heading into its earnings report.

Chief among them: how much debt will the company need to support its ambitious capital expenditure plans, and how quickly will these outlays turn into high-margin business?

Those worries had driven the stock down 30% from its record close on September 10, the session after its last earnings report, and fostered a surge in its credit default swap spreads.

Shares were already down nearly 7% in postmarket trading after Oracle’s Q2 2026 results showed revenues and cloud computing sales were light compared to expectations. Furthermore, capex of $12 billion was $3.8 billion higher than the consensus estimate, driving negative free cash flow of nearly $10 billion for the quarter, $4 billion worse than analysts had anticipated.

Early in the conference call, management said capital spending in this fiscal year (which ends May 31, 2026) would be $15 billion higher than previously envisaged.

Accordingly, the first two questions that executives fielded on the conference call were from analysts looking for clarity on these topics: the outlook for debt and profitability. The stock retreated even deeper into the red after the boost to capex guidance was announced, and nothing management said thereafter gave shares a bid.

Deutsche Bank’s Brad Zelnick commented that the company’s data center build-out was “a far more capital-intensive proposition unlike any business Oracle has ever been in before,” asking, “Very specifically, how much money does Oracle need to raise to fund its AI growth plans ahead?”

Chief Executive Clay Magouyrk’s response (emphasis added):

“First, let me give you kind of the reason why it’s hard to answer that question exactly. So the thing I think that a lot of people don’t understand is that we actually have a lot of different options for how we go about delivering this capacity to customers. There’s obviously the way that people think about it, which is we buy all the hardware up front. And as we — as I talked about at my financial analyst meeting, we don’t actually incur any expenses for these large data centers until they’re actually operational. So then it goes on to, well, how do you pay and what’s the kind of cash flows look like for the stuff that goes into the data center? Well, we have some other interesting models that we’ve been working on. One of them is that customers can actually bring their own chips. And in those models, Oracle obviously doesn’t have to incur any capital expenditures up front for that model.

Similarly, we have different models that we’re working on with different vendors, where some vendors are actually very interested in a model where they rent their capacity rather than selling that capacity. And as you can imagine, that comes with different cash flow impacts that are favorable and reduce the overall borrowing needs and capital required for Oracle.

So as you can imagine, as we look at all of these kind of commitments, we will use a range and a variety of those such that we minimize the overall cost of capital as well as in certain cases, we’ll be raising our own funds. As part of that, I think it’s important that everyone understand that we’re committed to maintaining our investment-grade debt rating.

So now to give you some more specifics, what I would say is, we’ve been reading a lot of analyst reports and we’ve read quite a few that show an expectation of upwards of $100 billion for Oracle to go out and kind of complete these build-outs. And based on what we see right now, we expect we will need less, if not substantially less, money raised than that amount to go and fund this build-out.”

Current consensus estimates call for Oracle’s short-term debt to be around $33 billion and long-term debt to be about $151.2 billion by its Q4 2030, up from $8.1 billion and $100 billion, respectively, from its Q2 2026 results, a net increase of $76.1 million. So it’s not clear that Wall Street is very far off from that “less, if not substantially less” than $100 billion assessment, which has been enough to raise concerns about the company’s prospects as of late.

Ben Reitzes of Melius Research then noted that the company recently offered guidance for margins among its AI cloud customers to be in the 30% to 40% range over the life of a customer contract. “I guess my question is, how long will it take your AI margins across all your OCI data enters to ramp to that level and what needs to happen to get there?” he asked.

Oracle’s principal financial officer, Doug Kehring, replied (emphasis added):

“Look, the answer is it really depends. So the good thing is that as I mentioned earlier, we don’t actually incur any expenses for the data centers until they’re actually built up and running. And then we’ve highly optimized that process by which we actually put capacity in and then are able to hand that over to customers, which means that the period of time where we’re incurring expenses without that kind of revenue and the gross margin profile that we talked about is really on the order of a couple of months. So in that scenario, that time period is not material. So a couple of months is not a long time.

What actually matters much more is the overall mix of the data centers that we have online, right, and how they’re growing compared to the total amount that we’re scaling across the world. And so I think as we go through this build-out phase, right now, we’re in a phase of very rapid build-out without the majority of the capacity online, obviously, the aggregate mix is going to be lower. But as we actually get the majority of this capacity online — and that’s really our focus. The best way to improve margins quickly is to actually go out and deliver capacity faster. That ends up very rapidly ensuring that we get to that 30% to 40% gross margin profile for all of the AI data centers.”

I get it. It’s complicated. But in the words of Don Draper, “That’s what the money is for!”

What makes this answer perhaps a little unsatisfying is that recent results do not inspire much confidence in the speed of Oracle’s build-out and, in turn, its ability to turn its massive RPO into revenues.

“Oracle missing estimates on cloud infrastructure sales — up 66% in constant currency, vs. consensus of 69% — we believe were due to supply constraints that are also affecting other hyperscale cloud providers,” wrote Bloomberg Intelligence analysts Anurag Rana and Andrew Girard.