Oracle (ORCL) was supposed to be the next trillion-dollar company after all the successes last year, but it is retreating back to square one. The company recently initiated massive job cuts to finance its capital-intensive AI infrastructure ambitions, or at least that's how the layoffs are framed.
TD Cowen estimates that the job cuts will impact 18% of Orcale's global workforce, meaning some 20,000 to 30,000 workers are being eliminated to free up $8 billion to 10 billion in capital. All of this money will go into new or existing data centers for which Oracle needs the funds.
How Does Wall Street See This Restructuring?
Investors are obviously spooked, as layoffs are never a good thing. A thriving company expands, whereas struggling companies conduct layoffs. Oracle is not yet a struggling company, but initiating layoffs this early on is an indication that cracks may be forming.
Oracle has been a mainstream software company for decades. If it is starting to let go of its software workers in an aggressive pivot to data centers, that says a lot about the industry. The S&P 500 Software Index is down 22% year-to-date (YTD) with little recovery in sight. A marquee software company cutting almost a fifth of its workforce is another bad sign that AI is adversely affecting software.
I expect these layoffs to have a negative long-term impact on ORCL stock despite the cost savings. If software stocks no longer command a significant premium like they used to, Oracle will be among them. Oracle's data-center and hardware operations are not mature enough to make up for the lost value on the software side.
The Data-Center Pivot May Not Save Oracle
Of course, Oracle is likely to stick around as a major company, but doubling down on data centers won't take it to $1 trillion just yet. Why?
This is not because of Oracle per se, but because of OpenAI, which constitutes more than $300 billion if Oracle's $553 billion of remaining performance obligations (RPO). Oracle and OpenAI recently signed a landmark $300 billion cloud/computing power deal spanning roughly five years, with a significant ramp-up starting around 2027. This is one of the largest cloud contracts in history and has been a primary driver of the backlog growth. Only a small portion of the total RPO is expected to convert to revenue within the next 12 months, with the rest spread over multiple years.
The issue is that OpenAI cannot spend that much on Oracle's data centers. OpenAI's 2025 revenue was approximately $13 billion (with roughly $20 billion in annualized revenue run-rate by year-end). The company also projects $14 billion in losses for 2026.
If OpenAI pulls out or partially meets the contracts, this alone will massively dent revenue growth estimates for Oracle.
What AI-Driven Job Cuts Mean for Oracle Now
These job cuts are not the typical “rolling” cuts Oracle has done in the past. They are explicitly tied to the cash crunch from aggressive capital spending on AI infrastructure to deliver on massive contracts like the OpenAI deal.
Some of these lost jobs can be made up for by using AI, but what Oracle is doing is quite unique. Most other software companies are in a no-hire, no-fire environment. Or they are simply doing layoffs piecemeal to ensure that job cuts aren't disruptive. A human is still needed in the loop, even if you can maximize efficiency using AI.
Oracle is ripping the band-aid off entirely, and this could quickly start breaking things since AI is not good enough to do everything on its own. Oracle will obviously see cash-flow relief to fuel the AI pivot, but that's still not enough to fully offset heavy capital expenditures of around $50 billion planned for fiscal 2026 alone.
With that in mind, ORCL stock does not look like a buy right now. The financials are still fragile, and the data-center bet is too aggressive. Why buy low cash flow in the midst of a software-to-hardware pivot when you can just buy a stock like Nvidia (NVDA), which is where the cash is actually flowing?
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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