Wall Street supports the narrative of "mass layoffs fueling an arms buildup for AI computing power"! Optimistic about Oracle(ORCL.US) making a big bet on data centers to shift cash flow

Zhitong Finance APP learned that Oracle (ORCL.US), a database software and cloud computing supergiant, is using layoffs to squeeze costs to the extreme in support of its grand AI ambitions. The layoffs are taking place against the backdrop of major tech giants—including Oracle, Microsoft, and Google—substantially increasing investment in AI infrastructure. This multinational technology group is seeking to cut thousands of jobs to free up a larger scale of cash to build the infrastructure for AI data centers. Reports cited by the media, based on information from insiders, say that this tech giant has already notified its massive workforce of 162,000 employees, and the next round of layoffs will affect tens of thousands of employees.

Oracle declined to comment on the latest layoff news. A Wall Street analyst said that, from a long-term perspective, layoffs will release cash flow, reallocating more resources from low-return areas to high-growth areas, thereby substantially increasing the company’s overall revenue.

Investors remain uneasy about the company’s massive AI capital expenditures on hyperscale AI data centers designed to handle AI workloads at a massive scale. Although Oracle’s stock price has rebounded this week so far by 5% thanks to signs of easing in Middle East geopolitical tensions, the stock has fallen by more than 25% year to date.

The company announced in early February that it plans to raise up to $50 billion in the 2026 calendar year through a combination of debt and equity, in order to massively expand the enormous real-world capacity of cloud infrastructure corresponding to its already contracted cloud computing demand tightly related to cloud AI training/inference compute resources. Its core customers mainly include NVIDIA, Meta (the parent company of Facebook), OpenAI, AMD, and xAI.

When model scale, inference pipelines, and multi-modal/agentic AI workloads drive compute resource consumption to expand exponentially, the mainline of tech giants’ capital expenditures is increasingly shifting toward concentrating AI compute infrastructure under conditions of a surge in AI compute demand. Global investors are also continuing to anchor the “AI compute bull market narrative” around NVIDIA’s AI GPU, Google TPU clusters, and expectations for new product iterations and AI compute cluster deliveries from AMD, as one of the most certain cyclical investment narratives in global stock markets.

U.S. tech giants such as Oracle are at the intersection of two unsettling trends stirring up the technology sector

According to the latest analyst expectations compiled by institutions, Amazon, along with Alphabet (the parent company of Google), Meta Platforms Inc. (the parent company of Facebook), as well as Oracle and Microsoft, are expected to reach about $650 billion in cumulative AI-related capital expenditures in 2026, and some analysts believe total spending could exceed $700 billion—meaning the year-over-year increase in AI capital expenditures could be greater than 70%.

Notably, the aforementioned five major U.S. technology supergiants are expected to cumulatively invest about $1.5 trillion between 2023 and 2026 to build enormous AI compute infrastructure; by contrast, these tech giants invested about $600 billion in total during the entirety of their historical period prior to 2022.

However, because the enormous AI spending described above will substantially reduce these companies’ free cash flow, and in the short term there is no clear monetization and revenue-generation path closely tied to AI, investors are becoming increasingly concerned. For when the ever-growing investment in AI compute infrastructure can deliver more significant returns on investment in revenue and profit growth—followed by the pessimistic narrative refrain of “AI disrupting everything”—global investors have continued to sell software stocks, including those of the five tech giants. This has led to their share prices remaining weak throughout this year. In particular, Microsoft’s share price fell 23% cumulatively in this year’s first quarter, recording the worst quarterly performance since the 2008 financial crisis.

Wall Street backs Oracle’s layoff moves, emphasizing that they will help save costs

In a research report released Tuesday, an analyst team from Barclays, a Wall Street financial giant, said that Oracle’s layoffs will help strongly release cash flow in the near and mid term. The firm said it will continue to give the stock an “Overweight” rating, and for the target price over the next 12 months, Barclays set a target share price of $230. By the close of U.S. stocks on Wednesday, Oracle’s stock closed at $145.230.

“Given Oracle’s large-scale restructuring plan for fiscal year 2026 and the related media coverage beforehand, we do not believe the layoff actions announced now would surprise the market. The market seems to have already recognized that, as Oracle is rapidly expanding the most core AI infrastructure production capacity, the cost-savings potential embedded in Oracle’s latest initiatives, along with the strong revenue-generation expectations brought by the AI infrastructure boom, will play out.” Barclays analysts said.

Barclays also emphasized that Oracle’s profit output per employee is lower than that of its competitors, and its employee productivity is also below the average level. Barclays’ latest forecast data show that, because employee headcount growth is limited compared with other cloud computing giants and operating costs are being drastically reduced, Oracle’s revenue over the next few years will grow to at least three times the current level.

Unlike Block’s “brutal layoffs” driven by AI agent technology, Oracle is focused on the AI compute arms race

For Oracle, this round of large-scale layoffs is more like freeing up cash flow for the AI compute infrastructure arms race, stabilizing investor sentiment, and improving capital utilization efficiency—not like the company has already clearly demonstrated that “AI agentic workflows are sufficient to directly replace large numbers of employees.”

Public information shows that while Oracle is launching layoffs affecting thousands of people, it is also pushing forward high-intensity AI infrastructure expansion. Not long ago, the company planned to raise up to $50 billion to expand capacity, and its share price has fallen significantly by about 29% since the start of this year. But at the same time, Oracle has also provided a very strong AI compute resource demand outlook: remaining performance obligations (RPO) surged 325% year over year to $553 billion, and it raised its fiscal year 2027 revenue target to $90 billion. In other words, the impact of the “AI disrupting everything” narrative on Oracle’s fundamentals is real and substantial; however, it is more like first reshaping the framework for capital expenditures, free cash flow, and valuation, and then gradually transmitting that effect to organizational structure.

Block, led by Jack Dorsey, co-founder of Twitter, carried out one-time layoffs of more than 4,000 employees, close to half of the company’s total headcount. The company’s public statement shows that its agentic AI tools in the AI agent model enable smaller teams to maintain higher-efficiency operations. Its CFO also further stated that focusing on agentic workflows powered by AI agents has significantly improved operating efficiency, and the resulting deep layoffs are, for any enterprise, “almost unavoidable.”

By contrast, although Oracle has recently indeed restructured its Fusion cloud software to focus on agentic AI workflows with Agent AI/Agentic AI, and aims to have systems directly complete business outcomes and automate large volumes of repetitive processes, the signals it has publicly given on the matter of layoffs still mainly center on restructuring, cost reduction, and making room for AI data center construction—not on making “AI is already enough to replace traditional organizational layers” the main layoff narrative as Block has done. For Oracle, the stronger layoff narrative for now is that the continued explosive growth in AI compute demand is pushing data center GPUs, power equipment, and other infrastructure and financing needs to extremely high levels. The company must reallocate resources from low-return areas to high-growth areas.