Oracle shares have plunged 47% since June to a
14-month low as investor David Desjardins warns the company’s massive AI
infrastructure spending — projected to exceed $90 billion in fiscal 2027 —
could trigger a financial crisis if AI demand cools. With $97.6 billion in net
debt, a recent credit downgrade to one notch above junk status, and free cash
flow swinging to negative $23.7 billion, concerns are mounting over Oracle’s
heavy reliance on OpenAI, which accounts for half of its record $638 billion backlog.
While Wall Street maintains a Strong Buy consensus with a $263.86 price target,
retail traders increasingly view the $300 billion OpenAI contract as a
liability, especially as OpenAI faces competitive pressure from Anthropic and
legal challenges from Apple.
Oracle (ORCL) shares tumbled 6.5% on Monday, hitting a
14-month low, as escalating geopolitical tensions and a stark warning from a
prominent investor amplified growing unease over the cloud giant’s massive
artificial intelligence spending spree. The stock has now cratered 47% since
the start of June, wiping out all gains made since it inked a landmark cloud
computing deal with OpenAI.
While Oracle’s recent quarterly results topped Wall Street
estimates and its remaining performance obligations (RPO) skyrocketed 363% to a
record $638 billion, the market is increasingly fixated on the other side of
the ledger. The company poured $55.7 billion into capital expenditures in
fiscal 2026 to build out its data center footprint, a figure projected to surge
roughly 70% to more than $90 billion in fiscal 2027. That aggressive spending
trajectory has led investor David Desjardins to issue a dire warning.
“Oracle could be among the first dominoes to fall in the
event of a sentiment shift surrounding AI infrastructure investments,”
Desjardins stated, assigning the stock a Strong Sell rating. He argues that the
sustainability of the AI buildout is far from guaranteed, pointing to recent
pullbacks in AI spending by companies like Uber, Tesla, and Accenture as early
signals that the insatiable demand driving Oracle’s expansion may not last
indefinitely.
The financial strain is already evident on the company’s
balance sheet. Oracle carries $97.6 billion in net debt and plans to raise an
additional $40 billion through debt and equity in fiscal 2027. Credit rating
agency S&P recently downgraded Oracle’s credit rating to ‘BBB-’, just one
notch above speculative-grade, or junk, status. The pressure on cash flow is
intensifying: free cash flow has swung from positive $11.8 billion in fiscal
2024 to a negative $23.7 billion in fiscal 2026.
“At what point does it become dangerous for Oracle’s
financial stability to continue on the current path?” Desjardins wondered.
Compounding the financial risk is Oracle’s heavy reliance on
OpenAI, which accounts for roughly half of the company’s remaining performance
obligations. That concentration risk is magnified by OpenAI’s own precarious
position. The AI startup is not expected to turn a profit until at least 2030
and remains heavily dependent on capital markets to fund its operations. “In
case the liquidity spigots unexpectedly close, Oracle would also be in the eye
of the storm,” Desjardins added.
The $300 billion, five-year cloud computing contract signed
between Oracle and OpenAI last September was initially hailed as a
game-changer. Beginning in 2027, Oracle is slated to supply OpenAI with the
computing power needed to train and run its frontier AI models. However, a
growing chorus of retail traders now views that deal as a liability rather than
an asset. “Oracle is now trading below where it was before landing the OpenAI
deal. Wall Street is repricing a $300+ billion OpenAI contract as a liability
instead of an asset,” one trader wrote on Stocktwits, where message volume
surged over 2,300% in a single day.
OpenAI’s challenges are mounting on multiple fronts. Rival
Anthropic has reportedly surpassed OpenAI in valuation and annualized revenue
run rate. OpenAI has also delayed its anticipated initial public offering to
next year, and Apple recently filed a lawsuit alleging trade secret theft,
further clouding the startup’s outlook.
The broader market backdrop added to the selling pressure on
Monday, with a fresh escalation between the U.S. and Iran rattling global
equities. ORCL shares fell below the crucial $134 support level that had held
throughout the year. Despite the steep decline, retail sentiment on Stocktwits
flipped to ‘extremely bullish’ from ‘bullish’ — a contrarian shift often
observed following sharp sell-offs — as dip buyers began to circle.
Yet Wall Street analysts remain overwhelmingly optimistic.
The consensus among 28 analysts is a Strong Buy, with 28 Buy ratings and just 3
Holds. The average 12-month price target of $263.86 implies a potential upside
of 103.5% from current levels. The divergence between Main Street caution and
Wall Street conviction underscores the high-stakes gamble Oracle is making on
the future of AI infrastructure.
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