Oracle’s AI Ambitions Face Financing Hurdles as Key Partner Exits

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Oracle Corporation finds itself navigating turbulent financial waters. The company's shares dropped nearly 5% following news that Blue Owl Capital, its primary partner in funding artificial intelligence data centers, has withdrawn from a planned $10 billion deal. This development has intensified investor scrutiny over the tech giant's mounting debt obligations.

According to a report by the Financial Times, Blue Owl Capital will not finance a planned data center project in Michigan. This firm had previously collaborated with Oracle on similar facilities in Texas and New Mexico. While Oracle has stated that negotiations with an alternative equity provider are proceeding on schedule, the withdrawal has fueled significant doubts regarding the feasibility of Oracle's aggressive AI infrastructure expansion.

The situation is underscored by Blue Owl's continued financing of data centers for Meta, a clear signal that the investment firm is consciously choosing to step back from its partnership with Oracle.

Mounting Debt and Cash Flow Concerns

The stock has declined approximately 18% in December alone. This steep drop was triggered by last week's quarterly earnings, which revealed several concerning indicators:

• $248 billion in lease obligations disclosed in SEC filings
• Escalating costs driven by accelerated AI investments
• A cash burn rate exceeding market expectations
• Credit Default Swap spreads reaching their highest level since 2009

Unlike peers such as Microsoft or Amazon, Oracle lacks a robust internal cash flow to fund its ambitions. Its aggressive growth strategy, closely tied to a $300 billion partnership with OpenAI, is increasingly being viewed as a substantial financial risk.

Credit Rating and Transparency Under Scrutiny

Oracle currently maintains a BBB- investment-grade credit rating. Company management has publicly committed to preserving this status. However, rising activity in Credit Default Swaps indicates persistent market skepticism. Further concerns about transparency stem from Oracle's practice of holding debt through off-balance-sheet joint ventures or special purpose entities.

Heavy Reliance on OpenAI Adds Complexity

Oracle's growth narrative is heavily dependent on its alliance with OpenAI. The landscape is shifting, however, as Google gains ground in the AI race and questions emerge about OpenAI's own financial sustainability. Compounding the pressure, Oracle's remaining performance obligations surged 438% in the second quarter to $523 billion. This figure signals strong demand but also an enormous future capital requirement.

Deepening December Losses and Analyst Reaction

The release of quarterly figures on December 10 precipitated a sharp sell-off in the stock. The company revised its investment expenditure projections upward by $15 billion. In response, at least 13 analysts downgraded their price targets for Oracle shares.

While Oracle's price-to-earnings ratio of approximately 29.5 is in line with those of Microsoft and Amazon, this valuation is being critically re-examined in light of the company's comparatively weaker cash flow position.