Oracle raises FY26 restructuring costs to $2.8 billion

MUMBAI: Oracle’s AI ambitions are getting expensive enough to need their own line item. The software giant is raising the estimated cost of its fiscal 2026 restructuring programme by about $700 million, taking the total to roughly $2.8 billion as it looks to rein in expenses while pouring money into artificial intelligence and cloud infrastructure.

Oracle disclosed the higher estimate in a regulatory filing on Friday, following the end of its August quarter. The restructuring programme covers employee severance, contract terminations and other costs linked to exiting certain activities, with the company saying the measures are partly tied to the wider adoption of AI across some functions.

The bigger restructuring bill comes as Oracle simultaneously steps harder on the AI accelerator. The company is expanding its cloud infrastructure to meet demand while investors remain focused on how much that expansion will cost and, crucially, how quickly it can translate into cash.

That tension was visible in the stock market. Oracle shares initially jumped as much as 7.8 per cent on Friday after the company’s revenue backlog grew by $26 billion. The enthusiasm faded, however, with the stock eventually closing about 2 per cent lower.

Oracle’s total backlog now stands at $664 billion, with roughly half expected to convert into revenue over the next 36 months. The company said much of the newly contracted business will not require it to finance the entire infrastructure build itself, as it is using customer prepayments and, in some cases, customers’ own chip supplies.

The strong first-quarter performance has helped ease some concerns around Oracle’s AI spending, but questions over cash generation remain. Analysts are watching whether the company can fund its rapid cloud-capacity expansion without putting excessive pressure on its balance sheet.

Oracle plans to raise $40 billion through debt and equity during the current fiscal year. That includes a $20 billion stock sale already completed in the first quarter.

The cash-flow picture remains the uncomfortable part of the AI story. Oracle reported negative free cash flow of $5.40 billion, although that was significantly better than the $9.56 billion average cash-burn estimate from analysts tracked by LSEG.

The company is also navigating rising component costs, financing requirements and opposition to new data-centre projects in the US, all of which could affect the profitability of its infrastructure push.

For Oracle, then, the restructuring is not simply about cutting costs. It is part of a broader balancing act: make the business leaner in some areas while making it considerably bigger in AI and cloud infrastructure. The $2.8 billion question is whether those two strategies can pay off at the same speed.