Debt, Data Centers, and OpenAI Dependence Put Oracle Under Pressure

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Just months after Oracle revealed a contract backlog of more than $400 billion, sending its stock soaring, investor doubts are rising over how much the company is spending on AI data centers and how closely its future is tied to OpenAI. These concerns will remain the main focus as Oracle reports its fiscal second quarter earnings.

Oracle has long trailed behind Amazon, Microsoft, and Google in the cloud computing sector. However, this year, it positioned itself as a major supplier of computing power for generative AI, largely due to its partnership with OpenAI, the creator of ChatGPT. That alignment has helped Oracle compete for a share of the fast-growing demand for AI infrastructure. Altogether, the largest cloud companies are expected to spend more than $400 billion this year building the data-center capacity needed for AI systems.

Analysts say a significant portion of Oracle’s recent capital spending is linked to OpenAI workloads. That has raised questions because OpenAI, while valued at around $500 billion, is still unprofitable and may need more than $1 trillion to fund its compute needs through 2030. How it plans to secure that money remains unclear. 

The uncertainty has fueled broader concerns that the LLM-boom may be turning into a bubble—dragging down Oracle’s stock and bonds. Shares have now given back all gains from a 36% jump in September following the announcement of its large backlog.

Signs of stress are also emerging in credit markets. Oracle’s five-year credit default swaps have risen to record highs as the company borrows heavily to finance its expansion.

Analysts warn that investors this quarter will focus less on Oracle’s near-term earnings and more on the sustainability of its AI-centric strategy. Oracle’s $300 billion cloud contract with OpenAI represents a considerable exposure to a single customer.

Oracle has attempted to reassure investors, stating that cloud-infrastructure revenue is expected to grow to $166 billion by fiscal 2030, and highlighting new customers, including a recent $20 billion deal with Meta. For now, AI demand remains strong: cloud-infrastructure revenue is expected to rise 71% in the September–November quarter. Overall revenue is projected to grow 15.3% to $16.21 billion—its fastest pace in more than two years—while net profit is expected to increase 13.3%.

If OpenAI fails to meet expectations, analysts say Oracle would likely scale back its buildout and reduce debt, but would not face default. And if OpenAI’s more optimistic scenario plays out, analysts note, the financial debate may become irrelevant.