Is Oracle an Omen for AI?
As Oracle slides after releasing earnings, let's see what this company could be telling us about the artificial intelligence trade.
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Oracle (ORCL) spit the bit in trading on Thursday after posting quarterly earnings results after the bell on Wednesday. The stock was off 11% in trading yesterday. Revenue growth landed about as expected, with cloud sales increasing by a third. It was capital expenditure levels that spooked investors. They came in at $12 billion for the quarter, more than $3 billion over the consensus estimate. Investors and analysts are becoming more concerned about Oracle’s debt levels.
Leverage ratios continue to rise as the company increasingly turns to the credit markets to fund its massive AI infrastructure buildout. Management is starting to talk about allowing customers to bring their own chips into these data centers. This would lower Oracle’s investment needs, but also decrease its future margins on these contracts.
A good chunk of the capacity Oracle is currently building is tied to the $300 billion five-year contract the tech giant signed with OpenAI just over two months ago. The announcement of this agreement sent Oracle’s stock skyward and briefly made Larry Ellison the richest of all of the oligarchs. But the shares have since given back all of those gains and then some.
This contract will provide Oracle $60 billion annually in revenue starting in 2027. This is just part of the over $1.4 trillion in future computing contracts OpenAI has committed to despite having roughly $14 billion in revenues and bleeding cash in 2025. Long past my death, Sam Altman’s bet the farm wager will be discussed in a Harvard Business case. The question is whether it will be lauded as one of the most visionary bets in U.S. history or one of the most massive follies.
One thing is for sure, and that is OpenAI’s commitments are one of the core drivers of both the surge in tech spending and the huge rally in AI-related names in recent years. This has become a core underpinning of both the equity markets as well as the U.S. economy. Whether OpenAI can finance that investment via a combination of increased revenue growth and capital raises is an existential $64,000 question for investors.
Chat GPT faces increasing competition from the likes of recently released Gemini 3 from Alphabet (GOOGL) . It would almost have to rival Microsoft 365 as the most successful subscription service in the world to fund its current plans. The other 800lb gorilla in the room as far as whether the AI Revolution will be able to deliver on its promises is whether enough new electrical generation capacity can be brought online fast enough to power all the massive AI data centers being built throughout the country.
A recent report from the Department of Energy forecast that data center demand will require an additional 50 gigawatts of new generation capacity by 2030. To put this in perspective, an AP1000 nuclear reactor from Cameco’s Westinghouse can provide just over 1.1 GW of electrical generation.
Given new nuclear capacity has taken a decade or more to come online historically, that is a huge ask. Smaller modular nuclear reactors could decrease this timeline. In the coming years, Elon Musk and Jeff Bezos will also be racing to put data centers in space where they can access 24/7 solar energy and do not require the huge amounts of freshwater to operate like they do on Earth. Natural gas generation capacity will get plenty of investment as will other more exotic efforts, like building the equivalent of a huge jet engine to provide this additional electricity.
But whether surging data center demand can be met without causing huge disruptions to the projected AI buildout timeline, should be viewed with a proper amount of skepticism. And given credit default swaps, or CDS, on Oracle’s debt have hit their highest levels since the Great Financial Crisis, the credit markets are signaling they are having increasing doubts around this endeavor.
Time will tell, but Oracle and OpenAI could be the key companies to watch to assess whether the AI Narrative can remain the core driver of the markets as we get into 2026.
At the time of publication, Jensen had no position in any security mentioned.
