Are Oracle's Earnings a Sign of Trouble Ahead for Artificial Intelligence (AI) Stocks?

• Oracle is investing heavy successful artificial intelligence, and it whitethorn beryllium taking connected excessively overmuch hazard successful the process.

• Its top-line results fell abbreviated of expectations successful its astir caller quarter.

• The institution besides drastically accrued its guidance for superior expenditures for the existent fiscal year.

• 10 stocks we similar amended than Oracle ›

Artificial quality (AI) stocks person yielded fantastic results for investors successful caller years. Since the commencement of 2023, the Global X Artificial Intelligence & Technology ETF has risen by astir 150%. During that stretch, the S&P 500 has climbed by a much humble complaint of 78% (returns arsenic of Dec. 15).

But erstwhile stocks emergence truthful rapidly successful a comparatively abbreviated clip frame, determination are inevitable concerns astir valuations and whether stocks person go excessively expensive. Many analysts and investors person besides go disquieted astir a imaginable bubble successful the markets, with the imaginable for a monolithic sell-off looming, not dissimilar the 1 that tech stocks suffered successful 2022.

One starring tech company, Oracle (NYSE: ORCL), precocious posted net that look to person sent immoderate shockwaves passim the AI world. Investors were taken aback by its latest results, and they could beryllium a occupation for AI stocks arsenic a whole. Here's why.

Oracle posted its latest net numbers connected Dec. 10. While the tech company's adjusted net per stock totaled $2.26 and came successful amended than estimates of $1.64, its gross fell abbreviated -- $16.06 cardinal compared with forecasts of $16.21 cardinal for the play ending Nov. 30. These metrics were mixed, but not truly a origin for concern.

The bigger occupation for Oracle was its reported large leap successful AI-related spending. The company's superior expenditures for the play totaled $12 billion, which were importantly higher than the $4 cardinal that it reported successful the prior-year period. It besides raised its guidance for superior expenditures for the afloat fiscal twelvemonth (which ends successful May), from $35 cardinal to $50 billion.

The dense spending has investors acrophobic astir whether each the AI-related investments volition beryllium worthwhile, particularly arsenic Oracle's indebtedness load rises. The company's indebtedness arsenic of the extremity of the 4th totaled $108.1 billion, which includes notes payable and different borrowings. By comparison, the institution has conscionable $34.4 cardinal successful existent assets connected its books. As of the extremity of May, its indebtedness load was $92.6 billion. It's a important summation successful a comparatively abbreviated clip frame, and it occurs arsenic investors are paying greater attraction to signs of excessive spending connected AI among companies. It's possibly not a astonishment that Oracle's banal has tumbled much than 17% since releasing its earnings.