Oracle’s $300bn, multi-year cloud infrastructure agreement with OpenAI has rapidly turned into a market headache, with investors dumping the stock amid concerns the company is over-leveraging itself to fund AI ambitions.
Since Oracle unveiled the deal on September 10, the software group has lost about $315bn in market value. Analysts say Oracle is effectively building a debt-fuelled data-centre empire around one giant customer.
Oracle Cloud Infrastructure Push
Oracle has set an aggressive target of $166bn in annual cloud revenue by 2030. To reach that goal, it plans capital expenditure of about $35bn this financial year, rising towards an estimated $80bn a year by the end of the decade. From 2027 onwards, the majority of that revenue is expected to come from OpenAI, according to company projections.
Oracle’s net debt is already about 2.5 times ebitda, more than double its 2021 level, and is forecast to nearly double again by 2030. Free cash flow is projected to stay negative for around five years. The cost of insuring Oracle’s debt via credit default swaps has climbed to its highest level in roughly three years, reflecting unease over the scale and funding of its build-out, even if absolute CDS levels remain modest.
Recently, though, Oracle, Broadcom and Amazon have all traded lower after disclosing OpenAI-related agreements, while Nvidia’s share price has barely moved since announcing its own investment tie-up. With AI-related capex from big tech racing towards the trillion-dollar mark, investors appear increasingly selective about which bets they will reward.
