Sept 11 (Reuters) – Oracle said restructuring costs included in a plan that includes job cuts will rise by about $700 million as the cloud company tries to rein in costs while spending billions to capitalize on growing demand for artificial intelligence services.
In a regulatory filing Friday, Oracle said the increase announced after the end of the August quarter raises the expected cost of its fiscal 2026 restructuring plan to about $2.8 billion. The plan, which the company says includes severance pay, contract termination and other exit costs, is partly due to the introduction of AI in some functions.
The cuts come as Oracle faces a turbulent period for its stock, with investors seemingly split between confidence in its AI-powered growth and concerns about how it is financing that growth.
Oracle shares rose 7.8% on Friday after a $26 billion increase in unpaid earnings eased some concerns about rising costs driven by debt.
The stock later reversed course and closed about 2% lower as analysts said cash flow was still a long way from recovering.
About half of the $664 billion in its reserves is expected to be converted into sales over the next 36 months, and most of its new contract revenue will not require equity capital, Oracle said, as it relies on customer upfront payments and its own supply of customer chips to build capacity.
That, coupled with upbeat first-quarter earnings and a stronger balance sheet, helped Oracle shares recover from a period of weak performance.
Through Friday’s close, the stock was down about 23% this year, compared with the S&P 500’s nearly 12% gain, as investors questioned Oracle’s expensive bets on artificial intelligence and the viability of its traditional software business in the age of artificial intelligence.
“Even though Oracle is asking customers to partially finance technical equipment to ease cash flow pressure, we don’t foresee Oracle’s cash flow profile changing anytime soon,” said Morningstar analyst Luke Young.
“It will be years before (cloud) revenues reach a scale that will support ongoing capacity expansion and at the same time generate positive cash flow.”
Oracle faces risks related to data center financing and profitability at a time when component costs have risen and backlash against data center development has intensified in the United States.
The company said it will raise $40 billion in debt and equity financing this fiscal year, including a $20 billion share sale completed in the first quarter.
The company reported negative free cash flow of $5.40 billion on Thursday, above analysts’ average estimate of $9.56 billion, according to data compiled by LSEG.
“The results were a solid step forward in rebalancing investor discussions around the company delivering accelerating revenue growth at scale. While the company’s debt load is a major concern, the positive aspects of the business have been lost in the mix,” Evercore analysts said.
The stock is trading at 16.86 times forward earnings estimates, compared to Microsoft’s multiple of 23.84 and Amazon’s multiple of 22.58.
(Reporting by Kanchana Chakravarty and Anzar Mehraj in Bengaluru; Editing by Harikrishnan Nair, Pooja Desai and Alan Barona)