AI Spending Hits a Reality Check: Oracle and Broadcom Earnings Reveal Why Rising AI CAPEX Isn’t Lifting Stock Prices Yet

Oracle and Broadcom earnings show why massive AI spending isn’t translating into higher stock prices. Margins and cash flow now matter more than AI revenue growth.

In December 2025 (ET), earnings from Oracle and Broadcom sent a subtle but important signal to the market.
Both companies confirmed strong AI-driven demand.
Yet their stock prices failed to respond positively.
This disconnect highlights a shift in how investors evaluate AI stocks.
The key question is no longer whether AI demand exists.
It is how quickly AI investments turn into profits and cash flow.
The market is entering a new phase of the AI cycle—one defined by financial discipline, not hype.

Oracle Earnings: Contracts Are Growing, Profits Are Lagging

Oracle reported strong growth in cloud and AI-related revenue, supported by a sharp increase in Remaining Performance Obligations (RPO).
RPO signals long-term demand and signed contracts.
However, RPO is not cash.
Large AI infrastructure contracts require upfront investment in data centers, power, cooling, and networking.
Revenue and profit recognition follow later.
Oracle also announced a significant increase in AI-related CAPEX for FY2026.
While this strengthens long-term competitiveness, it pressures near-term margins and free cash flow.
As a result, the market focused less on demand growth and more on the timing of returns.

Broadcom Earnings: AI Revenue Is Rising, Margins Are Not

Broadcom delivered solid revenue guidance driven by AI demand.
Still, the stock declined after management warned of potential margin pressure.
The reason lies in product mix.
Broadcom’s AI growth is led by custom AI chips (ASICs) and systems.
These products often carry lower margins than standard chips due to design complexity, manufacturing costs, and supply-chain dependencies.
In short, AI revenue is growing.
But AI profit per dollar is not necessarily improving.
Investors reacted accordingly.

A Shared Message: AI Is Now Valued Like Capital-Intensive Infrastructure

Oracle and Broadcom tell the same story from different angles.
AI is no longer valued purely as a high-growth narrative.
It is increasingly priced like an infrastructure business.
That means investors are asking about:

• Capital intensity
• Depreciation
• Margin sustainability
• Free cash flow conversion

High revenue growth alone is no longer enough.

Oracle vs. Broadcom: Key Comparison

Investor Implications Going Forward

This earnings season delivered a clear message.
AI investment is not slowing—but valuation rules are changing.
Going forward, investors are likely to prioritize:

• CAPEX efficiency
• Gross margin trends
• Free cash flow visibility
• Payback periods on AI infrastructure

AI leaders that prove profitability discipline may retain premiums.
Others may face valuation compression.

Oracle and Broadcom earnings confirm that the AI cycle has entered a new stage.
The market is no longer rewarding AI exposure alone.
Instead, it is demanding proof of sustainable margins and cash flow.
AI remains a powerful growth driver—but only companies that monetize it efficiently will be rewarded.

References

• Reuters — Oracle forecasts miss Wall Street targets as AI spending rises
• Oracle Investor Relations — FY2026 Q2 Financial Results
• Reuters — Broadcom forecasts upbeat revenue but warns on margins
• Financial Times — US tech stocks slide as AI boom fears resurface