In only three months, Oracle has turned from a surprise winner in the huge boom in AI company shares into a potential weakest link that could cause the market to crash.
The venerable Silicon Valley data giant’s latest quarterly earnings last week triggered an 11% fall in its share price, which is now nearly 40% below the all-time high it reached in September, when its co-founder, and biggest shareholder, Larry Ellison, briefly became the world’s richest man. Almost $150bn poorer than in September, he is now in third place after Elon Musk and Google co-founder Larry Page.
Oracle announced profits for the quarter through November of $16.1bn, slightly below what the market expected. This amplified two questions that worry investors. Oracle reached its September high by announcing a huge jump in its expected future revenues. But since then, it has emerged that much of this money will be due from OpenAI. That hyperactive company – last week doing a $1bn deal with Disney and launching a new version of its Chat GPT app – is the financially weakest of all the AI majors. So investors are asking, how much of this revenue can really be relied on?
Secondly, Oracle has been investing heavily in expanding its data centre capacity to meet the expected surge in demand. It has been borrowing billions to do so, including in the private credit markets that regulators fear will be the source of the next financial crisis. If, say, OpenAI proves unable to pay for all the data-centre usage it has signed up for, would Oracle be in trouble? Currently, Oracle’s dent, which used to be solidly investment grade, is trading just a little above junk bond levels.
Photograph by Mark Thompson/Getty Images
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