Oracle raises restructuring cost estimate by $700 million as AI spending climbs

Oracle has increased the expected cost of its fiscal 2026 restructuring plan by roughly $700 million, lifting the total to about $2.8 billion, the cloud company said in a regulatory filing. The plan includes job cuts, severance, contract terminations and other exit expenses, and is partly linked to the adoption of artificial intelligence across some functions.

The disclosure came after the close of Oracle's August quarter, a period in which the company beat analysts' estimates for both revenue and earnings on the strength of its cloud business.

Investor sentiment around the stock has been divided. Shares climbed as much as 7.8% on Friday after Oracle reported a $26 billion increase in its revenue backlog, easing some worries about its debt-funded spending. The stock later gave up those gains to close about 2% lower, with analysts noting that a recovery in cash flow remains some way off.

Oracle said roughly half of its $664 billion backlog is expected to convert into sales within 36 months, and that much of the newly contracted revenue will not require its own capital, as it leans on client prepayments and customers' own chip supply to build capacity.

Even so, the company faces risks around financing and data-centre profitability at a time of rising component costs and growing local opposition to data-centre development in the United States. Oracle has said it will raise $40 billion through debt and equity financing in the current fiscal year, including a $20 billion stock sale completed in the first quarter. It reported negative free cash flow of $5.40 billion, better than analysts' average estimate of a $9.56 billion cash burn.

"Despite Oracle asking customers to partially fund the technical hardware to alleviate its cash flow pressure, we do not foresee Oracle's cash flow profile changing anytime soon," Morningstar analyst Luke Yang said. "It will take years before (cloud) revenue reaches a scale that supports continuous capacity expansion while generating positive cash flow at the same time."

Evercore analysts described the results as "a solid step forward in balancing the investor discussion around a company delivering accelerating revenue growth, at scale," adding that while the debt load is a valid concern, the positives in the business have been lost in the mix.

The stock has fallen about 23% this year, compared with a nearly 12% rise in the S&P 500, as investors weighed Oracle's costly AI bets and the viability of its traditional software business in the AI era. It trades at 16.86 times forward earnings estimates, against Microsoft's 23.84 multiple and Amazon's 22.58.