Oracle Is Spending Billions on AI. Why It Might Not Pay Off.
Key Points
Oracle's AI infrastructure spending could reach at least $90 billion in fiscal 2027.
The stock has declined 35% so far this year.
Several states are imposing regulations and even bans against the development of data centers.
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Oracle (NYSE: ORCL) has made a big bet. As one of the leading suppliers of AI computing power, the company is paying billions to stay on top.
Oracle plans to spend upwards of $90 billion on AI infrastructure in fiscal year 2027. About $40 billion of those expenses will be funded through new debt and equity. This level of burn has made investors nervous, and there is one big reason why the company's massive investment in AI might not pay off: state legislation.
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Lawmakers across the country are listening to constituents and pushing back hard on the data center boom. Concerns about constraints on power grids and water supply, as well as surging electricity costs, have made their way into legislation that's being passed quickly.
This has resulted in potential tariffs for tech companies in states like Wisconsin, as well as outright moratoriums in New York and Maine. Fifteen states are considering bans on the development of data centers, but more than 40 states are imposing various regulations.
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This is an obstacle Oracle cannot control through cost-cutting measures. State legislation is a real bottleneck for Oracle that could also become quite costly.
Oracle is slashing costs wherever it can and recently announced layoffs of 21,000 employees. It's estimated that the layoffs could free up to $10 billion in cash. However, this is a drop in the bucket compared to what the company plans to spend and how much it stands to lose if data center pushback becomes even more widespread.
Investors might expect Oracle's growth to slow as a result, and the AI capex it's proposing will be more difficult to justify. Oracle's stock has decreased by 35% in 2026 and by 47% over the past 12 months. Until AI-related companies can come to a compromise with states, current investors should be patient through this rocky period. Those on the sidelines should wait and see how the rules and regulations play out over time.
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Catie Hogan has positions in Oracle. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.
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