Civil Law

In recent months, the filing of securities class action lawsuits involving artificial intelligence (AI)-related allegations has become an increasingly important part of overall securities suits filing volume. By and large, the AI-related suits have involved relatively smaller corporate defendants. Late last week, however, a plaintiff shareholder filed an AI-related securities suit against the technology behemoth Oracle, alleging that the company made misrepresentations in its disclosures concerning its AI infrastructure-related capital expenditures. For securities litigation trend watchers, the new lawsuit has a number of interesting features, as discussed below.

Background

Oracle is one of the largest technology companies in the world. Among other things, the company provides infrastructure for operating artificial intelligence programs. During 2025, the company announced substantially increased investments in its data center capabilities, including for data centers used by OpenAI, the operator of ChatGPT.

The securities lawsuit complaint alleges that in announcing its infrastructure investments, the company claimed that the company’s increased spending would rapidly convert into revenue and profit growth. In late September, securities analysts began raising questions about the extent of the company’s AI infrastructure investments. At least one analyst downgraded the company to “Sell” based on a conclusion that the company was overestimating the future growth potential of the Open AI deal.

On December 10, 2025, the company released its second fiscal quarter results, reporting that revenue growth had fallen below estimates, that the company’s capital expenditure was well above estimates, and that the company had negative free cash flow of more than $ 10 billion. In the earnings call, the company’s CFO said that the company projected 2026 fiscal year capital expenditure of $ 50 billion, $ 15 billion more than the company’s September 2025 projection.

These and other statements about the company’s anticipated capital expenditures raised analyst concerns about the company’s need for increased capital fundraising or debt financing. A subsequent news report disclosed that one of the company’s debt financing sources had backed out of a financing commitment due to concerns about the company’s spending commitments and rising debt levels. The complaint alleges that the company’s share price declined on this news.

The Lawsuit

On February 5, 2026, a plaintiff shareholder filed a securities class action lawsuit in the District of Delaware against the company and certain of its directors and officers. A copy of the complaint can be found here. The complaint purports to be filed on behalf of investors who purchased the company’s securities between June 12, 2025, and December 16, 2025.

The complaint alleges that during the class period, the defendants misrepresented or failed to disclose that: “(1) the Company’s AI infrastructure strategy would result in massive increases in CapEx without equivalent, near-term growth in revenue: (2) the Company’s substantially increased spending created serious risks involving Oracle’s debt and credit rating, free cash flow, and ability to fund its projects, among other concerns; and (3) as a result, Defendants’ representations about the Company’s business, operations, and prospects were materially false and misleading and/or lacked a reasonable basis.”

The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the plaintiff class.

Discussion

Readers that have been following the development of AI-related securities litigation have undoubtedly noted in recent weeks a growing number of new AI securities suits involving AI infrastructure companies (refer, for example, here and here). These lawsuits share a few common features, such as, for example, the huge dollar figures involved, given the sheer magnitude of the infrastructure investment. This new case against Oracle is consistent with this pattern, except perhaps that the volume of dollars involved is even more massive.

In prior posts about AI-related securities suits, I have noted that the cases generally fall into one of two categories – that is, either the cases involve AI-washing allegations, based on claims that the defendant company overstated its AI-related capabilities or prospects; or AI risk-related allegations, based on the claims that the company understated its AI-related risks.

Although the case could be made that this new lawsuit against Oracle involves features of both types of cases, I think this lawsuit is primarily an AI-risk disclosure lawsuit more so than an AI washing case, as the allegation is that the company omitted (or understated) the extent of its capital expenditure commitments and accompanying debt obligations.

The lawsuit has only just been filed, and it remains to be seen how it will fare. I will say that the case has an odd feel. It reads more like a mismanagement case than a misrepresentation case, almost as if the complaint is passing judgment on company management’s strategic decision making. The plaintiff may yet convince the court that the company committed securities fraud by overstating its ability to generate revenue commensurate with its spending commitments, but that remains to be seen. All of that said, the lawsuit does feel to be more than just a little bit premature – shouldn’t we at least wait and see how the company’s AI infrastructure investment strategy works out?

In any event, there are at least a couple of noteworthy features to this lawsuit, that may be important in thinking about AI-related securities litigation yet to come. The first is the sheer size of the dollars involved. The company’s anticipated capital expenditures are gargantuan. However, Oracle is not alone in making massive AI expenditure commitments; Google, Amazon, Microsoft, and others also have made massive AI-related investment commitments (by some estimates, these big companies collectively will spend over $ 600 billion on AI and Cloud investments in 2026 alone). Moreover, a plethora of aspirational AI infrastructure companies are waiting in the wings, hoping to conduct IPOs or other capital fundraising transactions this year.

Maybe all of this fundraising and investment will prove to be successful, but even so there are a lot of ways that this could all go wrong, and if it does, we could see other securities litigation involving lawsuits and relating to massive amounts of infrastructure fundraising and investment.

For those concerned about trying to get a handle on how extensive these AI-related risks are should consider that the risks run not only to tech companies; many non-tech companies (especially, for example, commercial construction companies), and tech adjacent companies (e.g, fiber optic cable companies) are also experiencing industry-distorting forces, that could leave many companies exposed when the current high expenditure tide goes out  (as discussed here). For those inclined to worry, there’s a lot to fret about here.

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