Oracle faces largest reversal in four decades as investors pull back

Oracle is facing its largest reversal in all the four decades of being publicly traded as investors pull back from the company’s massive AI infrastructure push after weeks of falling confidence and a brutal wipeout of gains.

The company’s stock, which jumped more than 30% in September after Oracle disclosed a $317 billion revenue backlog, has now fallen below its pre-rally level, with most of that backlog tied to OpenAI, according to the Wall Street Journal.

The plunge ties directly to how fast Oracle has been pouring money into building out AI data centers for OpenAI and other clients.

Even though the company once posted three different single-day surges above 30%, this is the first time those gains have evaporated and dropped past the starting point.

Oracle is taking on insane debts to keep up with AI demand

To fund its push into AI cloud services, Oracle sold $18 billion in fresh investment-grade bonds.

That sale pushed total outstanding debt past $100 billion, making the company the most indebted large tech firm that still holds an investment-grade rating.

Oracle is burning through cash and will need more borrowing to cover dividends and capital spending, with no sign that its pace of spending is slowing.

Both Moody’s Ratings and S&P Global Ratings have moved closer to cutting Oracle’s debt to junk. At the same time, one of Oracle’s future data-center landlords borrowed $38 billion to build two new campuses that Oracle plans to occupy.

Credit analysts at Morgan Stanley estimate that Oracle’s adjusted debt, which includes leases and other obligations, could rise toward $300 billion by 2028 if spending continues at this level.

Rishi Jaluria, an analyst at RBC Capital Markets, said, “The market has gone into ‘you have to prove this to me’ territory,” capturing how investors now want results rather than more spending promises.

Fund manager Blue Owl Capital, which invests in data centers used by major tech companies, is charging Oracle higher rent than tenants like Meta, citing higher perceived risk and using pricing to manage that exposure.

Investors are raising concerns about Oracle’s weird reliance on OpenAI

A major part of investor anxiety comes from how reliant Oracle has become on OpenAI, which is forecasting $74 billion in operating losses by 2028, equal to about three-quarters of its revenue.

Oracle has told investors it also has tens of billions in contracts with non-OpenAI customers like Meta, but the size of the OpenAI commitment makes the partnership impossible to ignore.

Clay Magouyrk, the head of Oracle’s cloud-infrastructure division, told CNBC in October he is confident OpenAI will keep its end of their long-term agreement, which could result in about $60 billion per year in payments to Oracle over five years.

Clay said he expects more than one player to succeed in the AI race, signaling that Oracle does not view its pipeline as tied to a single winner.

The tension around Oracle’s balance sheet is also showing up in the credit-default swap market. The cost of protecting the company’s five-year bonds against default has more than doubled since mid-September to roughly 1.1 percentage points. While still low in absolute terms, the jump shows a real shift in sentiment. Swaps like these can move fast because they are thinly traded, but traders are clearly positioning for risk.

Some of Oracle’s long-term creditors may be buying swaps to hedge their loans, while others are using them to “express an outright view on the broader AI capex theme,” as analysts at Morgan Stanley wrote in September.

With so much of Oracle’s future tied to AI spending and OpenAI’s performance, the market is pushing Larry El’s company to prove it can make its giant commitments pay off without sinking deeper into debt.

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