Oracle’s OpenAI Deal: A Ticking Time Bomb for Tech Investors?

Oracle's massive bet on OpenAI could backfire spectacularly—here's why smart money is getting nervous.

Infrastructure Overload

Scaling AI demands insane computational power. Oracle's throwing billions at servers just to keep pace—while rivals build more elegant solutions.

Regulatory Roulette

Watchdogs circle AI like vultures. One privacy misstep or bias scandal tanks the whole partnership. Remember what happened to crypto exchanges? Yeah.

Financial Fantasy

Another classic case of legacy tech chasing hype. Wall Street's already pricing in miracles—but reality rarely matches Silicon Valley fairy tales.

This deal reeks of desperation, not innovation. When the AI bubble pops, Oracle shareholders will wish they'd just bought bitcoin instead.

Image source: Getty Images.

Hitching its wagon to OpenAI

Following the first-quarter report, major news outlets reported that a gigantic deal with OpenAI was behind a big chunk of this new contracted revenue Oracle disclosed. OpenAI has reportedly committed to spending $300 billion over approximately five years on computing power from Oracle, a staggering sum.

One obvious problem with this deal is that OpenAI doesn't have $300 billion. The company has raised around $60 billion in funding in its entire existence. Revenue is reportedly at a $12 billion annual run rate right now, but losses are enormous. News site The Information has reported that OpenAI expects its cumulative cash burn through 2029 to reach $115 billion.

For OpenAI to actually pay for all the computing power that it's agreed to buy from Oracle, the company will need to raise additional funding at a blistering rate for years. On top of that, revenue needs to continue to explode higher and create the need for all that computing capacity.

Competition is one reason to be skeptical that OpenAI can grow revenue as quickly as it needs to. The company's highly anticipated launch of GPT-5 was a flop relative to expectations, and models from Anthropic and others remain highly competitive. OpenAI doesn't appear to have a competitive advantage in the business of creating and selling frontier AI models.

What could go wrong?

Oracle needs to build the infrastructure for OpenAI before it can collect revenue. CEO Safra Catz and Chairman Larry Ellison noted in the first-quarter earnings call that Oracle doesn't own data center buildings, only the equipment, and that it can go from spending on infrastructure to collecting revenue from that infrastructure very quickly. In effect, Oracle can only commit to capital spending when it's sure revenue generation is right around the corner.

This reduces some risk for Oracle, but it doesn't solve the main problem. OpenAI is not going to be able to pay for that infrastructure on a continuing basis unless it can keep raising large quantities of capital from investors.

Here's the worst-case scenario for Oracle:

Oracle's free cash FLOW is already in negative territory thanks to an increase in capital spending to support its cloud infrastructure business. Capital spending will need to ramp up further in the coming years to support the OpenAI deal, which could require additional debt. If OpenAI fails to follow through on its side of the deal, it's difficult to see a good outcome for Oracle.

If the AI boom continues unabated through 2030, Oracle's audacious $300 billion cloud deal with OpenAI will look like a genius move. If it doesn't, Oracle could be setting itself up for a disaster.