As of the time of writing, Oracle (ORCL 5.46%) stock is down 19.2% over the last five trading days. The move illustrates growing skepticism over the company's investment in artificial intelligence (AI).
What happened to Oracle
The bond markets are growing concerned with Oracle's ability to finance its AI investments, and not least its $300 billion data center deal with OpenAI. The AI company is committed to renting servers, while Oracle needs to build out the IT infrastructure and lease the data center "shells." As such, its expenditures are focused on GPUs, networking equipment, and power infrastructure, while taking on leases for the land and buildings.
NYSE: ORCL
Key Data Points
The rise in Oracle's corporate bond yields and the spike in credit default swap (CDS) spreads (a form of insurance against a bond's default), as discussed previously, are signs of stress in the bond markets.
The market is concerned about Oracle's financing situation, with the Wall Street consensus calling for cash outflows of $23.8 billion, $21 billion, and $14.2 billion, respectively, in its financial years from 2026 to 2028. Moreover, there are question marks surrounding OpenAI's future profitability, with Deutsche Bank forecasting a cumulative cash burn of $143 billion for OpenAI from 2024 to 2029.
Oracle problem not an AI problem?
While it's easy to conclude that these fears could and should spill over to the broader AI market, it's worth noting that a peer like Alphabet (GOOG 3.14%), (GOOGL 3.22%) is in a different boat for two reasons.
Image source: Getty Images.
First, despite its substantial ramp in capital spending (the market expects its capital spending to increase from $90.5 billion in 2025 to $131 billion in 2027) , it's still expected to generate a cumulative $225 billion in free cash flow from 2025 to 2028.
Second, Alphabet is largely spending to support its own computing power needs, and ultimately its own business. It can adjust its spending in line with its objectives.
As such, the decline in Oracle's shares appears to be more of an Oracle-specific issue than a broader market one.
