Oracle’s Debt Burden Overshadows AI Ambitions

The investment narrative surrounding Oracle has undergone a dramatic reversal. Celebrated as an emerging AI powerhouse just months ago following a significant partnership with OpenAI, the company now faces intense scrutiny over its financial health. The initial euphoria that propelled its stock has completely evaporated, giving way to concerns about a massive debt load and questions about the sustainability of its AI-driven growth story.

Credit Market Jitters Intensify

The core of investor anxiety stems from Oracle’s balance sheet. The company has inadvertently become a barometer for sector risk, with the cost of insuring against its potential default—known as Credit Default Swaps—skyrocketing. The situation is particularly tense for several reasons. Oracle’s debt now exceeds a staggering $100 billion, making it the most heavily indebted Big Tech company that still holds an investment-grade credit rating. Furthermore, its business model’s heavy reliance on continuous infrastructure spending introduces significant vulnerability. Traders are increasingly using positions in Oracle as a hedge against a potential bursting of the AI bubble, fearing that enormous capital expenditure could compromise the firm’s financial stability.

Vanished Gains and Historical Context

The speed of the reversal is historically significant for the company. A September surge of more than 30%, fueled by the OpenAI deal and a record-breaking backlog, has been entirely wiped out. Over its nearly four decades as a public company, Oracle has rarely seen such substantial gains evaporate so quickly. This performance indicates that Oracle is losing ground at a much steeper rate than other technology giants like Nvidia or Microsoft.

Should investors sell immediately? Or is it worth buying Oracle?

A Market Divided on Valuation

Wall Street analysts are deeply divided on the company’s prospects. The bullish case, championed by firms like Jefferies which maintains a $400 price target, points to the long-term potential in cloud computing and suggests the stock could nearly double. However, critics highlight an extremely rich valuation that leaves little room for error. A price-to-earnings ratio exceeding 50, coupled with a double-digit price-to-sales ratio, makes the equity highly susceptible to any operational disappointments. Even reported successes in its health division are currently insufficient to alleviate these fundamental concerns.

The company continues to consume substantial amounts of cash to fund the expansion of its AI infrastructure, thereby increasing its dependence on new debt to finance both dividends and crucial investments. This financial reality is reflected in the stock’s recent performance: the share price has plummeted over 21% in the last 30 days, currently trading at approximately 186.78 Euros.

All Eyes on the December Report

The upcoming quarterly results in early December are now the focal point for investors. This earnings release will serve as the next critical catalyst for the stock. The market will meticulously examine whether the demand for Oracle’s cloud and AI services can possibly justify the immense costs being incurred. Should the report confirm lingering fears about overcapacity within the sector, the downward pressure on Oracle’s shares is likely to intensify.