Digital Event Horizon
Oracle has made a dramatic entrance into the AI race, committing to spend hundreds of billions of dollars in chips and data centers. However, this move has unsettled some investors, who are worried about the company's ability to deliver on its promises. Oracle shares have fallen 25 percent in the past month, and the company's debt-to-equity ratio has surged to 500 percent. Despite concerns, many analysts remain bullish on Oracle's stock, citing its forecasted infrastructure business growth.
Oracle is investing heavily in artificial intelligence (AI) with a focus on chips and data centers, committing hundreds of billions of dollars over the next few years.The company's shares have fallen 25% in the past month due to concerns about its ability to deliver on promises.Investors are worried about Oracle's reliance on OpenAI, a venture capital-funded start-up, and the potential risks associated with its aggressive spending strategy.The company's debt-to-equity ratio has surged to 500%, far higher than its rivals, raising concerns among investors.Analysts remain bullish on Oracle's stock, but many have downgraded their rating due to the company's high expenses and reliance on a single customer (OpenAI).
Oracle, the US software group founded by Larry Ellison, has made a high-stakes bet on artificial intelligence (AI), committing to spend hundreds of billions of dollars in the next few years on chips and data centers. This dramatic entrance into the AI race has unsettled some investors at a time when markets are keenly focused on the spending of so-called hyperscalers – big tech companies building vast data centers.
The speed and scale of Oracle's moves have prompted concern among investors, who are worried about the company's ability to deliver on its promises. Oracle shares have fallen 25 percent in the past month, nearly twice the fall of the next worst-performing hyperscaler, Meta. The slide has reversed more than $250 billion of gains in its market value when the Texas-based group disclosed its deals with OpenAI, the maker of ChatGPT.
Oracle's strategy has become more focused on an all-out bet on AI, pinned largely to the success of OpenAI. This is a completely different business model to what investors prize in cloud services, according to Alex Haissl at Rothschild & Co Redburn. "The deals look fantastic when you look at the revenue figures, but they are very capital-intensive so create very little value," he said.
Investors are concerned about lofty valuations and huge capital expenditure by a few large tech groups that could backfire if a handful of lossmaking AI start-ups such as OpenAI and Anthropic fail to deliver on their promises for the technology. Oracle has prompted particular concern because it shifted from business software to cloud computing later than its rivals.
The company's reliance on OpenAI contracts has also raised concerns among investors. "Your main customer, biggest customer by far, is a venture capital-funded start-up," said Andrew Chang, a director at S&P Global. "That is a huge liability and credit risk for Oracle."
Oracle's debt-to-equity ratio has surged to 500 percent, far higher than Amazon's 50 percent and Microsoft's 30 percent, according to JPMorgan. The company's data center leases are also for much longer than its contracts to sell capacity to OpenAI.
Safra Catz, Oracle's sole chief executive from 2019 until she stepped down in September, resisted expanding its cloud business because of the vast expenses required. She was replaced by co-CEOs Clay Magouyrk and Mike Sicilia as part of the pivot by Oracle to a new era focused on AI.
Oracle has signed at least five long-term lease agreements for US data centers that will ultimately be used by OpenAI, resulting in $100 billion of off-balance-sheet lease commitments. The sites are at varying levels of construction, with some not expected to break ground until next year.
Despite the concerns among investors, many analysts remain bullish on Oracle's stock. The company's infrastructure business is forecast to increase revenues by more than 10 times by 2029, according to estimates compiled by S&P Visible Alpha. Oracle's shares are still up 30 percent this year.
However, Oracle has been aggressive in tapping debt markets to rapidly build its capacity. The group has about $96 billion of long-term debt, up from $75 billion a year ago, according to Bloomberg data. Morgan Stanley forecasts that this will soar to about $290 billion by 2028.
Ellison "is now way off the reservation in terms of how he's spending," said a short seller who has long tracked Oracle's stock but does not have an active bet against it. "The market is clearly saying it is no longer interested in companies burning endless cash on AI."
Barclays analysts this week downgraded their rating of Oracle's debt from market neutral to underweight, warning that its large expenses on AI infrastructure had outpaced its free cash flow.
Moody's has also flagged up significant risks due to Oracle relying on a small number of AI companies. S&P Global warned that a third of Oracle's revenues will be tied to a single customer by 2028, referring to its reliance on OpenAI.
Overall, Oracle's high-stakes bet on AI raises concerns about the company's ability to deliver on its promises and the potential risks associated with its aggressive spending strategy.
Related Information:
https://www.digitaleventhorizon.com/articles/Oracles-AI-Gambit-The-Tech-Giants-High-Stakes-Bet-on-Artificial-Intelligence-deh.shtml
https://arstechnica.com/information-technology/2025/11/oracle-hit-hard-in-wall-streets-tech-sell-off-over-its-huge-ai-bet/
Published: Mon Nov 17 11:35:59 2025 by llama3.2 3B Q4_K_M
