Oracle’s OpenAI Gamble: Why Wall Street Can’t Look Away
Tech giant's AI bet sparks market jitters—and a classic case of 'innovate or die' theater.
When Oracle doubled down on OpenAI integration last quarter, analysts cheered. Now? The same crowd's sweating through their Patagonia vests.
Here's the kicker: No one actually knows if this exposure is genius or recklessness—but the volatility makes for great CNBC soundbites.
Bonus jab: Remember when Larry Ellison said 'cloud computing' was nonsense? Now he's betting the farm on AI like every other CEO chasing that sweet, sweet hype-cycle dopamine.
Oracle absorbs rising costs as capex explodes
Oracle reported 14% revenue growth year over year in its latest quarter, its strongest rate in almost three years. The number still came in a bit below Wall Street expectations.
Oracle also added about $68 billion to its revenue backlog through new deals with Meta and Nvidia, though the company had already mentioned those deals during an October analyst meeting. The actual surprise came from spending. Oracle disclosed a record $12 billion in capital expenditures for the quarter ending in November, well above the $8.4 billion analysts expected.
The company raised its full-year capex forecast from $35 billion to $50 billion, which sent its stock down another 12% in after-hours trading.
A capex bill of that size represents 75% of Oracle’s projected revenue for the year. Over the past five years, the company averaged about 17%.
By comparison, Meta is expected to spend roughly 36% of its revenue on capex this year. The numbers show how much strain Oracle is taking on while trying to supply OpenAI and maintain the rest of its cloud clients.
Oracle carries massive obligations tied to OpenAI
Oracle’s spending is tied to more than data-center growth. OpenAI represents the majority of the company’s $523 billion in remaining performance obligations. These obligations are contracts for revenue that have not yet been recognized.
The total is nearly nine times the size of Oracle’s annual revenue. Cloud rivals like Microsoft, Amazon, and Google sit at far lower ratios. Microsoft, which is OpenAI’s primary computing partner, carries a backlog only about 1.4 times its revenue over the last four quarters.
Oracle’s future growth depends on OpenAI meeting those commitments. But few companies can take on deals at this scale, leaving Oracle with limited paths to diversify. The stability of those obligations also depends on the direction of AI demand and whether competitors like Google or Anthropic keep reducing OpenAI’s lead.
Gil Luria of D.A. Davidson said Oracle needed to use its quarterly report “to address concerns about the tricky balance of borrowing money to build out capacity for OpenAI, with the new understanding there is very low likelihood OpenAI will live up to its obligations.”
Oracle did not provide that clarity. The company burned a little more than $13 billion in cash over the last four quarters and now holds about $88 billion in net debt.
That stands in sharp contrast to rivals with large net-cash positions. Moody’s said last week that “Oracle has the highest exposure to OpenAI and has the weakest credit metrics among investment-grade hyperscalers.”
Oracle said Wednesday that it intends to protect its investment-grade rating as it finances its AI expansion, but investors are showing clear signs of frustration as the financial pressure keeps building.
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