Oracle’s AI Ambition: A High-Stakes Financial Balancing Act

Oracle US68389X1054

Oracle finds itself at a critical juncture, caught between a significant strategic victory and mounting Wall Street concerns over the immense capital required to fund its future. While the company has secured a pivotal role in the operation of TikTok in the United States, a stark analysis from Morgan Stanley has cast a long shadow over the financial implications of its aggressive artificial intelligence and cloud expansion.

On January 23, 2026, Oracle solidified a major operational achievement with the finalization of an agreement to establish "TikTok USDS Joint Venture LLC." This deal averts a potential U.S. ban on the social media platform and firmly establishes Oracle as a core infrastructure and security partner.

Key elements of the arrangement include:
* Ownership: U.S. investors will control 80.1% of the new entity, while ByteDance retains a 19.9% stake.
* Oracle's Stake: Oracle, alongside Silver Lake and MGX, will hold a 15% interest in the venture.
* Operational Role: Serving as the "Trusted Technology Partner," Oracle will host all U.S. user data. Furthermore, the TikTok algorithm will be retrained on U.S. servers to meet national security requirements.

The agreement values the U.S. unit at approximately $14 billion and has garnered political support, including public praise from former President Donald Trump. Despite this positive development, it has been insufficient to counter growing investor anxiety regarding the company's financial trajectory.

Morgan Stanley's Sobering Capital Assessment

The primary source of recent pressure on Oracle's share price is a comprehensive research report issued by Morgan Stanley on January 23, 2026. The firm dramatically reduced its price target for Oracle from $320 to $213—a cut of roughly 33%. While maintaining an "Equal Weight" rating, the tone of the analysis turned notably more cautious.

The core contention is that market expectations for Oracle's AI-related capital expenditures are far too low. Morgan Stanley estimates that the company will need to invest a total of around $275 billion (Capex) for fiscal years 2026 through 2028. This figure starkly exceeds the prevailing market consensus of approximately $189 billion.

This substantial discrepancy is critical, as it would fundamentally reshape Oracle's financial planning. Elevated capital spending pressures free cash flow, impacts the balance sheet, increases financing needs, and could weigh on the company's valuation in the medium term.

Mounting Debt and Eroding Profit Targets

According to Morgan Stanley's projections, the consequences of this investment surge would be clearly visible in key financial metrics. Oracle's gross debt could balloon to over $400 billion, with leverage ratios increasing more than fivefold.

Concurrently, the analysts lowered their earnings per share (EPS) forecast for fiscal 2028 to $8.51. This estimate falls meaningfully below Oracle's own corporate target of $10.65 per share for that year.

Investors are growing concerned that while the planned "GPU-as-a-Service" business will generate revenue, high hardware and financing costs could severely compress margins. Additional worries center on whether higher interest and refinancing costs are fully reflected in bond spreads and valuations. Reports of ongoing lawsuits from bondholders, alleging insufficient disclosure of AI-related debt obligations, have further amplified these concerns.

Market Performance Reflects Prevailing Skepticism

Skeptical investors currently hold sway in the market. Oracle shares were last quoted at €165.90, largely unchanged from the previous session but down approximately 13% from a week ago and roughly 16% below their level from one month prior. The stock remains significantly distant from its 52-week high of €280.70, trading about 40% lower, though it still sits above its annual low.

From a technical perspective, the chart shows weakness. Key support levels have been breached, with the share price trading nearly 9% below its 50-day moving average and close to 16% under its 200-day line. Market technicians also point to a clearly negative pattern and elevated volatility, with the 30-day annualized volatility exceeding 65%.

Conclusion: The Cost of Expansion

In summary, Oracle is currently a tale of two narratives. On one side is a rapidly growing cloud business boasting a $426 billion backlog and a prestigious TikTok deal that cements its role as a critical infrastructure partner. On the other side loom dramatically rising investment plans, the threat of surging debt, reduced profit expectations, and legal pressure from creditors.

The market is currently fixated on the cost side of the equation. Morgan Stanley's recent price target reduction and the intense debate around capital expenditure and leverage have pushed the stock into a phase of sustained skepticism. The crucial question for the coming quarters is whether Oracle can demonstrate that its massive AI and cloud investments will translate into sustainably profitable revenue streams, allowing it to still achieve its ambitious earnings targets.

@ boerse-global.de | US68389X1054 ORACLE’S