While Increasing AI Investment and Striving to Control Costs, Oracle (ORCL.US) Adds Another $700 Million in Restructuring Costs for Fiscal Year 2026

According to Zhitong Finance APP, while Oracle (ORCL.US) is investing billions of dollars to seize the opportunities brought by surging demand for artificial intelligence (AI), this cloud computing giant is also seeking to control costs. In a regulatory filing submitted on Friday, the company stated that, as part of a restructuring plan that includes layoffs, its costs will increase by about $700 million.

Oracle said this additional expense, disclosed after the end of its August fiscal quarter, will bring the estimated cost for the company’s FY2026 restructuring plan to about $2.8 billion. The plan includes severance payments, contract termination fees, and other exit costs, some of which are related to the introduction of AI in certain functional departments.

Notably, this round of layoffs comes at a time when Oracle's stock price has experienced a period of volatility. Investors seem to be split into two camps: one is confident in the AI-driven growth of the company, while the other is concerned about how this growth will be funded.

Oracle’s Q1 FY2027 results showed revenue rose 30% year-on-year to $19.35 billion, beating analysts’ average expectation of $19.13 billion. The company attributed its revenue growth to robust performance in its cloud infrastructure business and increased data center capacity. Operating profit was $6.73 billion, up 57% year-on-year; net profit attributable to common shareholders was $4.68 billion, up 60% year-on-year; and adjusted earnings per share were $1.92, better than the analysts’ average expectation of $1.75.

By business segment, the highly-watched cloud business recorded a 62% year-on-year revenue increase to a record $11.61 billion, surpassing analysts’ average forecast of $11.52 billion. Within that, cloud infrastructure revenue rose 121% year-on-year to $7.4 billion, beating the consensus of $7.19 billion, while cloud application revenue climbed 10% year-on-year to $4.2 billion. Some analysts previously predicted that, as market demand for AI computing power continues to surge, the increasingly competitive pricing environment would benefit Oracle's cloud business.

Customer demand for AI cloud training and inference services continues to grow at a rate outpacing supply. In the first quarter, Oracle added over $30 billion in AI cloud contracts, bringing its Remaining Performance Obligation (RPO) up 4% quarter-on-quarter to $664 billion, surpassing analysts’ average estimate of $618 billion. According to the structure of these new contracts, the company confirmed there would be no additional impact on its financing plan. Since the end of Q4 FY2026, the company has delivered over 300,000 GPUs to its AI cloud customers, nearly three times the delivery capacity in the previous quarter.

Oracle stated that of its $664 billion in backlog orders, about half is expected to convert to sales revenue within the next 36 months, and most of the revenue from new contracts will not require the company’s own capital; instead, the company relies on customer prepayments and customers supplying their own chips to expand capacity.

In addition, at the end of the first quarter, Oracle’s free cash flow was negative $5.4 billion, better than the analysts’ average estimate of negative $9.56 billion according to data compiled by LSEG. Oracle said capital expenditure in the three months ending August 31 was $28.5 billion, most of which was spent on data center equipment, far exceeding the analysts’ expected $19.23 billion.

Barclays analyst Raimo Lenschow wrote in a report that although capital expenditure was higher than expected, the company did well controlling other costs, and the extent of negative free cash flow was not as severe as the market feared.

Evercore analysts also noted: “This Oracle result is a solid step forward, making the investor debate about this company more balanced—it is achieving accelerating revenue growth at scale. While the company’s debt burden is indeed a legitimate concern, the positives in the business are being overlooked in this debate.”

This series of news eased some of the market’s concerns over Oracle’s debt-fueled spending spree and helped its stock price recover from previous weakness. However, Oracle’s stock rose as much as 7.8% on Friday before reversing and closing about 2% lower.

Some analysts have said that improvement in Oracle’s cash flow will still take time. Morningstar analyst Luke Yang commented, “Although Oracle is requiring customers to cover part of the technology hardware costs to ease cash flow pressure, we do not expect Oracle’s cash flow situation to change in the short term. It will still be several years before (cloud) revenue reaches a scale that can both support ongoing capacity expansion and generate positive cash flow.”