Oracle’s AI Ambitions Face Mounting Investor Scrutiny

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Oracle Corporation is navigating one of its most challenging periods in recent memory. Market participants are growing increasingly skeptical of the software giant's aggressive spending strategy and its substantial reliance on a single major partner in the artificial intelligence space. As infrastructure investments skyrocket, concerns are mounting over whether these multi-billion dollar bets will generate tangible returns swiftly enough to justify the outlay.

The growing unease has manifested in a sharp sell-off. Oracle's stock price reflects this negative shift dramatically, closing at €161.44 on Friday and marking a weekly decline of 13.62%. This movement has pushed the shares approximately 43% below their 52-week peak, completely erasing the gains achieved during last autumn's rally.

This reaction was triggered by the company's latest quarterly results, which highlighted a troubling financial disconnect. While Oracle reported a massive increase in its remaining performance obligations (RPO) to $523 billion, the actual revenue realized fell short of market expectations.

The High-Stakes Gamble on Capital Expenditure

A primary focus of investor criticism is the sharply raised guidance for capital expenditures. For the full fiscal year, Oracle now anticipates CapEx to reach $50 billion, a significant jump from the previously planned $35 billion. The market fears the company is pouring immense sums into data center construction at a precarious time; its free cash flow already turned negative in the second quarter. Analysts worry that Oracle's infrastructure capacity is expanding faster than its customers' ability or willingness to pay for it.

Compounding these worries are media reports suggesting potential delays in new data center builds, attributed to shortages in materials and labor. Although Oracle promptly denied these reports and emphasized its commitment to meeting all contractual milestones, skepticism has persisted in the market.

Concentration Risk and Credit Market Jitters

A central point of contention is Oracle's dependence on OpenAI. An estimated $300 billion of the company's contractual commitments are linked to this one client, creating a significant concentration risk. This is particularly acute given that the creator of ChatGPT is not itself profitable for the foreseeable future.

The collective anxiety is also visible in the debt markets. The cost of insuring against an Oracle default via Credit Default Swaps (CDS) has climbed to a multi-year high, underscoring heightened nervousness among bondholders.

Analysts Adopt a "Show-Me" Stance

In response to the developments, numerous analysts have revised their price targets downward. While many have maintained their overarching "Buy" recommendations, the underlying tone has shifted markedly. Oracle is now widely viewed as a "show-me story." Company leadership faces intense pressure in the coming quarters to demonstrate that its record-breaking backlog can be successfully converted into profitable revenue without overextending the balance sheet. The coming months will be a critical test of whether Oracle's costly AI infrastructure bet can ultimately pay off.