Why Oracle Stock Plunged More Than 12% This Week

• While Oracle’s earnings beat Wall Street expectations, it missed revenue targets and its soaring capital spending has rattled shareholders.

• Broadcom’s earnings report on Thursday showed its profit margins are shrinking, adding to market anxiety.

• 10 stocks we like better than Oracle ›

shares Oracle (NYSE:ORCL) It’s down this week, down 12.9% as of 2:41 p.m. ET. on Friday. The reason for the decline is S&P 500 Index and Nasdaq 100 fell 0.6% and 1.8% respectively.

Oracle reported mixed second-quarter earnings on Wednesday, showing the company’s artificial intelligence (AI) spending spree is rapidly accelerating. The report is accompanied by BroadcomThe earnings report released the next day was enough to reignite concerns about an artificial intelligence bubble.

Oracle reported earnings per share (EPS) of $2.26, easily beating Wall Street’s target of $1.64. Oracle’s revenue was lower than expected, with actual revenue of $16.06 billion compared with expectations of $16.21 billion, and a sharp increase in its artificial intelligence investments cast a shadow on earnings growth.

Oracle’s quarterly capital expenditures (capex) reached $12 billion, compared with only $4 billion in the same period last year. It was also 50% higher than Wall Street’s expectations. Investors are wondering whether the company’s capital spending is sustainable, given how much it relies on expensive financing.

Broadcom’s report Thursday did little to ease investor nerves. Although the company posted record revenue, CEO Hock Tan said its gross margins on AI sales were lower than those of its other business units.

Oracle is selling large amounts of high-interest corporate bonds to fund its escalating capital spending. This is a very dangerous game, and the demand for artificial intelligence continues to grow at lightning speed. Any material weakness in that demand would be very bad news for the company and its shareholders.

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