Oracle’s latest earnings have raised a question across global markets, Is the AI boom heading into a real test? Shares of the cloud and software giant plunged more than 15% on Thursday, after the company posted Q2 2026 results that missed Wall Street’s revenue expectations and also indicated a steep rise in capital spending.
Oracle’s slump pulled the whole tech market down on Thursday. Nasdaq futures fell more than 1%, hitting a one-week low. Nvidia shares also fell about 3%, showing how worries about AI spending are spilling over into other AI-related companies. The selloff brought back concerns that tech stocks may be too expensive given the huge investments going into AI.
Capex shock
If investors were hoping for reassurance, they did not get it.Oracle warned that capital expenditures for fiscal 2026 would be $15 billion higher than the $35 billion projected just months ago, pushing expected spending to nearly $50 billion, largely to fund the construction of giant AI data centers across the US. The scale, and speed of this capex surge rattled the market, raising concerns that Oracle’s AI strategy may take far longer to translate into profits.
Yet the company insists it has flexibility. CEO Clay Magouyrk pointed to new financing models in the earnings call, “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 upfront for that model.”
CFO Doug Kehring also pushed back on worries about rising debt, saying Oracle has multiple funding avenues and can “borrow substantially less than most people are modeling.” He said the company remains committed to keeping its investment-grade rating. However, what we can see is that the assurances did not sway markets.
Record AI pipeline but revenue creation far away
Oracle delivered a good result on one metric which is a $523 billion pipeline of future cloud contracts, up 438% from last year and ahead of expectations. New deals with Meta and Nvidia helped diversify beyond the company’s high-profile OpenAI partnership. Still, those contracts only convert to revenue once the required AI infrastructure is built and that infrastructure is what is driving Oracle’s increasing costs.
Bank of America analysts told Reuters, “The current weakness is more capex investment cycles needed to support demand, with the company paying the price for the abnormal speed in which investment is required to meet current AI demand trends.”
Farhan Badami of eToro offered a similar take, “This will be a question of patience for investors. This AI boom won’t be an overnight success, and spending in the short term is a necessity, but it will pressure margins,” as told to Reuters
Is AI bubble about to burst?
Oracle’s stumble has increased concerns over the AI rally and the bubble. Some industry leaders argue the boom is unsustainable. Nigel Green of deVere Group warned that only 5% of AI projects are currently boosting profits and predicted “90 per cent” of AI companies could fail, adding, “The situation with AI is going to play out similarly,” as told to Bloomberg.
Antler founder Magnus Grimeland told CNBC that strong revenues and real behavioural shifts set this era apart from the dot-com bubble, “What makes this a little bit different from a bubble and makes it very different from dotcom is that there’s really real revenues behind a lot of this growth. Think about how quickly our behaviour online has changed, right? … 100 per cent of my searches a year ago [were on] Google. Now it’s probably 20 per cent.”
Meanwhile, a Bank of America survey shows most still believe an AI bubble exists, and even central banks are nervous. The Bank of England recently warned that a sharp correction in AI-linked stocks could spill into the wider financial system.