Oracle Corporation's stock has tumbled more than 14% over the past five trading sessions, as investors grapple with a mix of concerns ranging from the sustainability of artificial-intelligence spending to rising borrowing costs and the company's deep ties to OpenAI. The latest slide extended on Tuesday, with shares falling another 3.1%, even as the broader chip sector rebounded from Monday's sharp selloff.
The recent weakness underscores the market's reassessment of companies most exposed to the financing and infrastructure demands of the AI boom. Oracle has increasingly moved in tandem with developments surrounding OpenAI, which has become a major customer and a key driver of the company's ambitious cloud expansion plans.
OpenAI concerns weigh on Oracle
Shares of companies supplying products and services to OpenAI broadly declined on Monday after prominent AI executives called for more responsible development of increasingly powerful models. The worries have since expanded beyond the immediate technology outlook to the potential scale of capital expenditures required to build and deploy these systems.
Patrick Walravens, head of technology research at Citizens, told MarketWatch that some investors are concerned that recent discussions about "pacing the frontier" of AI development—referring to a call by Anthropic CEO Dario Amodei to slow down—could lead to more measured spending by frontier labs like OpenAI and Anthropic. He also noted that possible government regulation of AI could further dampen spending.
Oracle is particularly vulnerable because it has taken on significant debt to finance a massive expansion of cloud capacity intended to support OpenAI's growth. DA Davidson analyst Gil Luria described Oracle as occupying an unusual position in the cloud market: it has the backlog of a hyperscaler but the risk profile of a neocloud—a newer cloud provider built specifically for AI computing needs.
At the end of the August quarter, Oracle reported total remaining performance obligations—a proxy for backlog—of $664 billion. However, FactSet data shows the company carries $88 billion in net debt. "If AI slows down, at some point that could reduce the demand for AI compute and the most impacted would be neoclouds, especially ones with leverage," Luria said.
Rising yields add to financing pressure
Oracle's AI spending plans are also under scrutiny as US borrowing costs climb. The benchmark 10-year Treasury yield reached its highest level since 2007 on Tuesday, while investors increasingly expect the Federal Reserve to hike interest rates. Higher yields are particularly impactful for technology companies because a large portion of their valuations relies on earnings and cash flows expected years into the future. Rising rates reduce the present value of those future cash flows and make debt-funded infrastructure projects more expensive.
This pressure is especially relevant for Oracle, which has committed to significant investment in AI-related infrastructure. The company has said it will raise $40 billion through debt and equity financing in its current fiscal year, including a $20 billion stock sale completed in the first quarter. Oracle reported negative free cash flow of $5.40 billion on Thursday, though that was better than analysts' average estimate of a $9.56 billion cash burn, according to LSEG data.
The company's increasing debt burden has contributed to pressure on its shares this year, with the stock down close to 30%.
Layoffs add fresh concern
Adding to the negative sentiment, Oracle began notifying employees about a fresh round of layoffs, with social media buzzing with posts from workers claiming to have received termination emails. The company reportedly told affected employees that the redundancies were part of a "broader organizational change," with Monday marking their last working day.
Strong results had briefly eased investor concerns
The recent decline follows a sharp post-earnings rally in Oracle shares after stronger-than-expected quarterly results and an upbeat outlook helped ease concerns surrounding its debt-funded AI expansion. JP Morgan analysts led by Samik Chatterjee said the results addressed several investor concerns, including the sustainability of backlog growth, its conversion into revenue amid data-center delays, and the possibility of further capital raises.
"We got both better in-period execution and future-period bookings than anticipated. Check and check," analysts led by Jackson Ader at KeyBanc Capital Markets said. Those results provided evidence that Oracle's huge backlog can translate into future revenue, but the recent market weakness suggests that financing requirements and the pace of AI development remain central to the stock's outlook.
Analysts remain positive on Oracle's outlook
Despite the recent selloff, several analysts have maintained positive views following Oracle's earnings report, and there has been no re-rating by analysts following concerns about an AI development slowdown. According to Stocktwits, 35 of 43 analysts rate the stock Buy or higher. The consensus price target is near $239, representing a 70% upside from current levels.
Citi reiterated its Buy rating, saying Oracle had "cleared the runway" for its upcoming Investor Day. "Oracle delivered a solid fiscal first quarter that checked nearly every box and reinforced our confidence in the company's AI-driven growth trajectory," the firm noted.
Investors looking for more context on Oracle's AI backlog and its potential impact on the stock can refer to this analysis of Oracle's AI backlog. For a broader view on the company's valuation and competitive positioning, see Jefferies' take on Oracle's upside. Additionally, recent market reactions to Oracle's moves are covered in this piece on Oracle's slide amid rising yields.
This article is for informational purposes only and does not constitute financial advice.
