Oracle's $50 billion AI bet sparks analyst downgrade warnings
Morgan Stanley cuts price target by 33% as heavy equity issuance raises dilution concerns
Oracle's ambitious $50 billion plan to fund artificial intelligence infrastructure expansion has drawn sharp criticism from Wall Street, with Morgan Stanley slashing its price target by one-third amid concerns about mounting debt, shareholder dilution, and balance-sheet risks.
The technology giant announced plans to raise between $45 billion and $50 billion in gross cash proceeds during 2026 to construct data centers supporting contracted demand from major AI customers including Meta, NVIDIA, and OpenAI. The funding strategy relies on an even split between debt issuance and equity, with a flexible at-the-market program authorized for up to $20 billion in common stock sales over time according to company filings.
Morgan Stanley analyst Keith Weiss cut his price target for Oracle shares by 33%, from $320 to $213, while maintaining an "Equal-weight" rating. The reduction reflects concerns that Oracle's infrastructure expansion, necessary to support long-term cloud and AI contracts, will significantly impact earnings per share and push capital expenditures far beyond market expectations according to the analyst report.
"There is limited upside from current levels as the stock already reflects much of the positive news," Weiss wrote, noting that Oracle's cash capital expenditures could reach approximately $275 billion between fiscal years 2026 and 2028—substantially higher than consensus estimates. This level of investment could cause adjusted debt, including leases, to surpass $400 billion, elevating leverage above 5x and increasing balance-sheet and ratings risk.
Morgan Stanley revised its fiscal 2028 earnings per share forecast to $8.51, below Oracle's target of $10.65, and reduced its 2030 estimate to $10.02—less than half of management's $21 goal.
The equity component of Oracle's financing strategy has particularly rattled investors. Approximately half of the planned funding—$22.5 billion to $25 billion—will come from equity issuance, including mandatory convertible preferred securities and the $20 billion ATM program that allows Oracle to sell shares gradually at prevailing market prices according to the company's financing announcement. Citigroup is leading both the ATM issuance and the mandatory convertible preferred equity offering.
Shareholder dilution concerns have intensified as Oracle's stock has plummeted more than 52% from its 52-week high of $344.21 to around $165 based on current market data. The company now trades well below the consensus analyst target of $288.26, with 29 of 41 analysts maintaining a "Strong Buy" rating despite the recent challenges.
Oracle's aggressive capital expenditure plan represents a fundamental transformation from a steady cash generator to a heavy capital spender, signaling what management calls a "structural shift in the cloud market." The company aims to build hyperscale AI infrastructure to meet surging demand from cloud customers according to Oracle's official announcement.
However, the funding approach has raised concerns about deteriorating credit quality. Oracle's credit default swap prices have spiked in recent weeks, reflecting market anxiety about the company's growing leverage. Reports indicate that multiple U.S. banks have pulled back from financing Oracle-linked data center projects, potentially increasing Oracle's borrowing costs according to market analysis.
To free up additional cash flow for the AI buildout, investment bank TD Cowen suggests Oracle may consider cutting 20,000 to 30,000 jobs and selling its Cerner health-care software unit, which could generate $8 billion to $10 billion in proceeds according to a recent report. Such moves would mark a significant operational shift for the company, which has historically prioritized stability and steady shareholder returns.
Despite the concerns, Oracle's cloud business continues to show strong growth. Analysts forecast a 17% revenue increase in fiscal 2026 and 29% in fiscal 2027, driven primarily by the cloud segment. The company reported 14.2% year-over-year quarterly revenue growth in its most recent period, with quarterly earnings growth of 90.9% based on company financials.
Oracle's heavy spending comes at a time when the broader technology sector is grappling with questions about the returns on massive AI investments. While cloud infrastructure demand remains robust, investors are increasingly scrutinizing whether the capital-intensive race for AI capacity will generate sufficient returns to justify the costs.
The company plans to issue a single, one-time tranche of investment-grade senior unsecured bonds to cover the debt portion of its financing needs, scheduled for early 2026. Oracle does not anticipate issuing additional debt beyond this transaction during calendar year 2026, a move aimed at preserving its investment-grade credit rating according to the financing plan.
As Oracle moves forward with its ambitious AI expansion, the company faces the challenge of balancing long-term strategic positioning with near-term shareholder interests. With equity issuance looming and leverage metrics under pressure, investors will be watching closely for signs that the massive bet on artificial intelligence infrastructure begins to deliver the returns management has promised.