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Oracle’s AI Ambitions Meet Market Skepticism

Oracle’s rapid push into artificial intelligence infrastructure—once a major driver of excitement—has met new headwinds as the company increasingly turns to debt to fuel its expansion. After soaring 36% in September to its highest level in decades, Oracle’s stock has since fallen more than 30%, wiping out all of those gains and putting the company on track for its worst month since 2011.

The optimism around Oracle’s AI partnerships, particularly its deepening ties with OpenAI, has cooled. Investors are now questioning whether the company’s aggressive spending and lofty revenue projections can be sustained without straining its financial stability.

Mounting Debt and Dwindling Confidence

Over the past year, Oracle has leaned heavily on outside financing to build out its data-center footprint and acquire the costly GPUs required to compete in the AI infrastructure race. Analysts say this strategy is pushing the company further into debt, with little near-term relief in sight.

According to people familiar with the matter, Oracle is seeking to raise $38 billion in new debt to support its AI expansion—one of the largest funding pushes in the company’s history. This financing is expected to back multibillion-dollar data-center projects in Texas, New Mexico and Wisconsin, as well as large-scale GPU purchases from Nvidia and AMD.

While these investments promise future growth, they come at a time when Oracle is generating significantly less free cash flow than rivals like Amazon Web Services, Google Cloud and Microsoft Azure.

KeyBanc analyst Jackson Ader noted that Oracle is projected to produce the least free cash flow among major GPU-focused cloud providers, forcing the company to rely on more “creative financing structures” to support its capital needs.

AI Expectations Shift After Early Enthusiasm

The turning point came after Oracle’s “AI World” conference in October, where executives touted more than $450 billion in signed—but not yet recognized—contracts and presented a bullish long-term vision. Investors initially embraced the outlook despite its ambitious scale.

But shortly after, skepticism grew. On October 17, shares fell 7% after analysts questioned Oracle’s ability to hit its long-term projections—especially the company’s goal to grow cloud infrastructure revenue from $18 billion in FY2026 to $166 billion in FY2030, a nearly tenfold jump.

AI expectations also softened across the market. Analysts at Barclays and others noted that enthusiasm for large AI infrastructure buildouts has slowed as investors seek clearer evidence of sustainable demand.

Barclays’ Andrew Keches downgraded Oracle’s debt rating, citing “significant funding needs” and warning that the company’s credit outlook showed “no clear path to improvement.”

Reliance on OpenAI Raises Big Questions

One of the most pressing concerns is Oracle’s dependence on OpenAI, which has reportedly committed to spending $300 billion on Oracle cloud services over five years. Some investors doubt whether OpenAI—still early in monetizing its massive user base—can meet such a commitment.

When asked whether OpenAI can pay Oracle $60 billion a year, Oracle co-CEO Clay Magouyrk confidently said “of course,” pointing to what he described as explosive demand for AI tools. OpenAI CEO Sam Altman recently stated that OpenAI is on track to surpass $20 billion in annualized revenue and could reach “hundreds of billions” by 2030.

Even so, analysts question whether OpenAI’s growth will materialize at the pace Oracle is banking on. AI remains expensive to build, maintain and scale, and the economics of GPU renting deliver much lower margins than Oracle’s historically high-margin software business.

As D.A. Davidson analyst Gil Luria put it, “Oracle represents the bad behavior in the AI buildout,” noting that its profit margins on GPU rentals fall far below the ~80% margins the company enjoys in its core offerings.

Market Reaction: Rising Risk Signals

The uncertainty has pushed Oracle’s 5-year credit default swaps—a measure of the cost to insure against default—to a two-year high. While analysts say the levels are not alarming, the increase signals that investors are hedging more aggressively.

Barclays has even recommended buying these swaps, suggesting that Oracle’s credit profile may weaken further in the near term.

Oracle’s next earnings report, expected in mid-December, will be a pivotal moment for the company. Investors will be watching closely for signs of stabilizing cash flow, renewed momentum in cloud revenue and updated details on OpenAI-related demand.

The Bull Case: Betting on Ellison

Despite the growing pressure, Oracle still has vocal supporters. Some hedge funds argue that founder Larry Ellison’s long record of strategic wins makes the current downturn a buying opportunity. RBC analyst Rishi Jaluria echoed this sentiment, suggesting that new AI partnerships or enterprise deals could revive investor confidence—even though he maintains a hold rating for now.

For the time being, however, Wall Street appears unconvinced. With debt rising, growth projections questioned and AI sentiment cooling, Oracle faces one of the most challenging chapters of its AI transformation yet.

Whether the company can turn momentum back in its favor will depend on execution, financing discipline and proof that the massive AI investments will deliver sustainable long-term returns.