The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Pranav Kiran

TORONTO, June 15 (Reuters Breakingviews) - The 18th-century statistician Thomas Bayes laid out how to update prior beliefs based on new evidence without wildly overreacting. This so-called Bayesian logic has found modern cachet as a kind of mantra for technology gurus. Oracle ORCL.N Chairman Larry Ellison and his management team are leaning into the idea with a cash-burning data-center building spree.

It's a strategy causing significant financial pain. The $560 billion company is burning through cash to move beyond chatbot-threatened software. Ellison will preside over $92 billion of capital spending this fiscal year, dwarfing a sub‑$2 billion average before 2022, according to Visible Alpha. The surge is so large that free cash flow is set to remain negative until 2029, forcing Oracle to tap debt and equity markets repeatedly. It unveiled plans last week to raise another $40 billion, half of which had been announced earlier.

The shift will reshape a longtime software vendor into a leading provider of raw computing power for AI models. Products related to infrastructure cloud services are projected to rise to roughly 70% of revenue over the next five years.

Each new development has sent investors scurrying. News of massive new contracts in September, for example, added $250 billion to Oracle’s market value. Since then, the stock price has mostly moved downward, including a $70 billion drop on the updated spending plans. The cost of insuring against default on the company’s debt has skyrocketed as its stock slumped more than 40% from last year’s peak.

It suggests a strong negative verdict. Even so, consider the alternative of avoiding the arms race. Since ChatGPT’s debut in November 2022, Oracle shares have more than doubled. The BVP Emerging Cloud Index, which tracks software-focused high-fliers, is up only about 20%. Oracle’s enterprise trades at roughly the same multiple of expected EBITDA that it did back then, while those of ServiceNow NOW.N, Salesforce CRM.N and others have plummeted. As do-anything chatbots threaten to render traditional applications obsolete, investors have begun to ascribe miserable long-term growth prospects to code-slingers.

This reflects the reality that AI infrastructure spending is expected to reach about $1.4 trillion this year, according to consultancy Gartner, while 7% of the application software market is at risk from ChatGPT or Claude.

Shifting from one to the other is risky, with net debt surging to 3.4 times EBITDA, just shy of the level that Fitch suggests could pressure the company’s investment‑grade rating. For now, though, Ellison at least revised his thinking with fresh AI facts.

CONTEXT NEWS

Oracle on June 10 reported $19.2 billion in revenue for the fourth quarter of its fiscal year ending on May 31, compared with the $19.1 billion anticipated by analysts, according to data compiled by LSEG.

The company said it expects to raise nearly $40 billion through a combination of debt and equity financing in its 2027 fiscal year. Its share price fell 8.5% on June 11.