Oracle's shares dropped 10% — the company announced the issuance of stocks and bonds aimed at raising $20 billion

Oracle's share price fell 10% on Thursday after the company announced the issuance of $10 billion worth of new shares alongside an equal amount in bonds.

The sharp drop in share price is primarily linked to the new stock issuance. Offerings of this kind dilute existing shareholders' stakes, as additional shares of the company enter the market. Oracle's goal is to raise capital, though the company has not yet specified how it will use the proceeds.

Stephens Upgrades Oracle's Rating

Amid the market's negative reaction, investment firm Stephens raised its rating on Oracle shares to Overweight. This indicates that analysts are recommending the stock be held at a higher-than-market weighting in portfolios.

According to the firm's assessment, signs of reduced capital expenditure and forecasts related to Oracle's cloud infrastructure business — OCI — have lowered perceived risks in this area. Stephens explained that this has significantly improved free cash flow (FCF) projections, while forecasts for revenue, adjusted earnings per share (PF EPS) and adjusted operating profit (PF EBIT) have not changed materially.

Oracle's Capital-Raising Plan

The company's announced dual offering is designed to raise $20 billion in total. The $10 billion bond issuance will provide Oracle with debt financing, while the new share offering will increase the company's equity capital.

Oracle is currently continuing to invest in its cloud infrastructure business. Nevertheless, the large-scale issuance of new shares could keep pressure on the stock price in the short term, as the market will need to absorb the additional supply and assess the impact of dilution on existing shareholders.