SAP stock (NYSE: SAP) fell in Thursday’s pre-market trading as investors reacted to a spending shock from rival Oracle, not to any fresh bad news from SAP itself.
Oracle shares dropped about 9% after its earnings call, while SAP slid more than 3% in early US trading.
The trigger was Oracle earnings where the company said capital expenditure could reach as much as $95 billion in fiscal 2027, far above the $67.7 billion analysts had expected.
For software investors, Oracle’s strong cloud quarter was overshadowed by a bigger concern: the rising cost of staying competitive in the AI race.
Why Oracle’s $95 billion bet spooked the markets?
Oracle did not report weak demand. In fact, it reported the opposite.
The company’s fourth-quarter cloud revenue rose 47% to a record $9.9 billion, helped by booming demand for AI computing power.
Oracle Cloud Infrastructure revenue jumped 93%, and remaining performance obligations, a measure of future contracted revenue, climbed to $638 billion.
But investors focused on the cost of the impressive numbers.
Oracle’s capital expenditure surged 162% in fiscal 2026 to $55.7 billion, above its own $50 billion target.
For fiscal 2027, the company now expects capex of up to $95 billion.
CFO Hilary Maxson said around $70 billion would be Oracle’s own spending, with another $20 billion to $25 billion expected to be repaid by customers.
The cash-flow picture added to the concern as Oracle generated negative free cash flow of $23.7 billion in fiscal 2026 as it poured money into data centres and AI infrastructure.
Maxson also warned on the earnings call that gross margins would “step down” this fiscal year as the data-centre buildout accelerates.
Oracle CEO Clay Magouyrk tried to frame the spending as a sign of strength.
He said the company’s first-quarter fiscal 2027 delivery was approaching one gigawatt of capacity, almost matching what Oracle delivered in the previous four quarters combined.
Also read: Why Oracle earnings are significant for Intel, AMD stock
The ripple effect
SAP’s weakness appears less about company-specific news and more about sector read-through from Oracle’s guidance.
The two companies overlap across enterprise software, cloud services, databases, ERP and AI-enabled business applications.
Oracle’s plan to spend as much as $95 billion on AI infrastructure, therefore, raises a broader question for the sector: whether rivals will also face higher investment requirements to defend growth and market share.
That is why SAP was caught in the move.
The company has not announced a comparable capex plan or issued a fresh profit warning, but investors are pricing in the possibility that competitive pressure from AI infrastructure spending could eventually weigh on margins across enterprise software.
The fear is simple: if Oracle’s AI infrastructure push works, other enterprise software companies may need to spend more aggressively to compete.
If it does not work, the whole sector may have to deal with investor skepticism over whether AI spending is producing enough returns.
Jacob Bourne, an analyst at eMarketer, summed up the tension in comments reported by Reuters.
“The demand is real, with cloud infrastructure revenue and backlog growing fast. But the funding question is getting harder, not easier, with capex coming in well above estimates and free cash flow still negative,” he said.
There is also a second concern hanging over the software sector. AI tools are increasingly capable of automating tasks that traditional enterprise software products were built to manage.
That does not mean SAP’s business is broken, but investors are becoming more sensitive to any sign that AI may change the economics of enterprise software.
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