Oracle Is Squeezing Employees as AI Development Costs Mount
Of all the tech companies to reinvent themselves through the power of artificial intelligence, Oracle may be the most surprising. The software giant of yesteryear (well, the 1980s and ‘90s), which stumbled in software’s transition to the cloud, has gotten a new lease on life as an AI cloud provider. We’ll get an update on its progress on Tuesday when Oracle reports results for its quarter ending in August—the first of its 2026 fiscal year. (Oracle’s fiscal year runs June through May). But there’s been some clues dropped lately that suggest the company is slashing costs to help pay for its costly AI cloud expansion.
My colleague Anissa Gardizy hears Oracle executives are discussing eliminating cash raises and bonuses for employees this year, with additional stock grants likely to offset the cash compensation that isn’t being paid. That’s on top of widespread reports of layoffs at the company, at least some of which are based on regulatory layoffs in states such as California. (We reached out to Oracle for comment but didn’t hear back.) Still, severe cost-cutting is a predictable response to the financial strain that Oracle is under.
In the May quarter, the company burned cash (technically it reported negative free cash flow) of $2.9 billion, thanks to capital expenditures of $9.1 billion, roughly triple what the company spent a year earlier.
As it had generated cash earlier in the year, Oracle’s fiscal 2025 full-year result was a small cash burn of $400 million. Analysts are projecting the company will show higher cash burn for fiscal 2026, according to S&P Global Market Intelligence, following the company’s projections that capital expenditures will rise 19% to at least $25 billion. Nowadays, you don’t see too many companies of Oracle’s age (it will be 50 in 2027) burning cash. Amazon, Microsoft, Google and Meta Platforms are all spending furiously on AI as well—and also cutting jobs here and there to control costs. But they all generate so much cash from their main businesses that they can comfortably pay for the massive capex—at least for now. (This will likely change: It’s getting a bit tight at Amazon, and Meta CEO Mark Zuckerberg’s statement on Thursday that Meta will invest $600 billion on data centers through 2028 suggests it could change for Meta as well).
Oracle is banking on this big investment paying off in the years to come. Indeed, its quarterly revenue growth accelerated over the past 12 months from 7% in the first quarter of fiscal 2025 to an expected 13% for the first quarter of fiscal 2026. CEO Safra Catz has forecast 16% revenue growth in fiscal 2026 and analysts see that growth accelerating to 20% in fiscal 2027 and 24% in fiscal 2028. But top line growth is no guarantee of higher profits if costs rise even more. As we’ve written here, getting new data centers open on time can be much more expensive than planned.
Moreover, as Anissa reported in this piece, Oracle’s risk in AI is heightened by the fact that Oracle is building giant facilities for just one customer—OpenAI—rather than lots of customers as other cloud firms do. In the long run, Oracle employees may appreciate having received extra stock grants instead of cash. But any slowdown in the AI spending boom could throw everything into reverse, potentially hitting Oracle harder than its bigger rivals.