TLDR
- Oracle stock has fallen 35% from its September peak, erasing gains from its OpenAI partnership announcement and dropping for four consecutive days to its lowest level since June.
- The company’s $300 billion OpenAI contract represents 65% of Oracle’s revenue forecast, raising concerns as OpenAI reported a $12 billion loss while Oracle relies heavily on debt financing for AI infrastructure.
- Oracle plans to raise $38 billion in debt to fund data center expansion, prompting Barclays to downgrade its corporate debt to “underweight” over weakening balance sheet concerns.
- Credit default swaps for Oracle hit two-year highs as investors question whether OpenAI can meet its $60 billion annual payment commitment to Oracle over five years.
- Analysts warn Oracle’s GPU rental margins are lower than its core 80% margin business, while short interest has climbed to 2% of outstanding shares as investors seek to hedge AI exposure.
Oracle stock continues its steep decline as Wall Street questions the company’s partnership with OpenAI and mounting debt levels. Shares dropped 4.5% on Thursday to $216.71, the lowest since July 1. Friday’s premarket trading showed another 2.7% decline to $211.80, marking the fourth consecutive day of losses.
The stock has lost more than $300 million in market value since peaking on September 10. This reversal comes after Oracle shares surged 36% in September following news of a massive OpenAI contract.
The company’s September earnings report included a $300 billion agreement with OpenAI to provide computing power. That deal represents roughly 65% of Oracle’s remaining performance obligations forecast. The massive commitment initially excited investors but now raises questions about execution.
Oracle plans to raise $38 billion through debt sales to fund its AI infrastructure buildout. The company needs capital to develop and lease data centers across Texas, New Mexico and Wisconsin. Oracle is also purchasing hundreds of thousands of GPUs from Nvidia and AMD to run AI models.
Debt Concerns Mount
Barclays analyst Andrew Keches downgraded Oracle’s corporate debt to “underweight” this week. The firm warned Oracle could lose its investment grade credit status due to a weakening balance sheet and negative cash flow.
“We struggle to see an avenue for ORCL’s credit trajectory to improve,” Keches wrote to clients. He suggested Oracle might turn to off-balance sheet debt facilities and vendor financing as funding options.
Oracle’s 5-year credit default swaps climbed to a two-year high. The contracts function as insurance for investors worried about the company’s ability to repay debt. Barclays recommended clients buy these swaps.
KeyBanc Capital Markets analyst Jackson Ader noted Oracle is expected to generate the least free cash flow among major cloud companies in the GPU business. “AI sentiment is waning,” Ader said in an interview.
OpenAI’s Financial Reality
Microsoft revealed a $4.1 billion hit to its September quarter earnings based on its 32.5% stake in OpenAI. The disclosure implied OpenAI lost around $12 billion during the same period. That loss nearly matches the company’s projected $13 billion revenue for all of 2025.
D.A. Davidson analyst Gil Luria told CNBC that Oracle represents “bad behavior in the AI buildout.” He contrasted Oracle with Microsoft, Amazon and Google, which have available cash and customer demand to justify expansion.
Luria pointed out GPU rental margins are lower than Oracle’s core business, which operates at roughly 80% margins. “We should definitely take everything they say from now on with a grain of salt,” Luria said during a Wednesday interview.
Short interest in Oracle stock rose to around 55 million shares, or 2% of outstanding float. That’s up from 1.2% at the end of last month. Investors appear to be using Oracle as a proxy to short OpenAI, which remains private.
Recent Developments
Oracle held its AI World conference in October, where the company said it expects $166 billion in cloud infrastructure revenue by fiscal 2030. That forecast represents growth from $18 billion in fiscal 2026.
Skepticism hit shortly after the conference. Shares fell 7% on October 17 as investors questioned the company’s ability to reach its outlook.
OpenAI CEO Sam Altman said in a post last week that the company will top $20 billion in annualized revenue this year. He projected OpenAI will reach hundreds of billions in revenue by 2030.
Oracle’s next quarterly earnings report is expected in mid-December.
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