According to Financial Times News, Oracle announced a $300 billion partnership with OpenAI on September 10th that has since cost the company $374 billion in market value. The deal positions Oracle as OpenAI’s primary compute provider, with the company targeting $166 billion in cloud revenue by 2030. Oracle plans to spend $35 billion in capital expenditures this fiscal year alone, with annual capex expected to reach $80 billion by 2029. The company’s net debt has already doubled since 2021 to 2.5 times EBITDA and is projected to nearly double again by 2030. Most concerningly, cash flow is forecast to remain negative for five consecutive years while the majority of revenue from 2027 onward would depend on OpenAI.
The All-In Bet
Here’s the thing about Oracle’s strategy: they’re essentially becoming OpenAI‘s landlord in the cloud computing space. But unlike traditional hyperscalers who own their data centers, Oracle is taking on massive debt to build capacity specifically for one customer. The theory is that Oracle can scale faster and cheaper than competitors because they’re tenants rather than owners. But that also means they’re taking on enormous risk without the asset ownership that provides long-term stability.
And the numbers are staggering. We’re talking about negative cash flow for five straight years while debt keeps piling up. Oracle’s betting everything on OpenAI’s success in achieving AGI – artificial general intelligence. That’s like putting your entire retirement fund on a single lottery ticket. Sure, the potential payoff is huge, but the downside could be catastrophic.
The Fading OpenAI Magic
Remember when any company that announced an OpenAI partnership would see their stock pop? Those days appear to be over. Broadcom and Amazon both saw declines after their OpenAI deals, and Nvidia barely moved following their September investment. Oracle’s massive loss in market value suggests investors are getting smarter about these announcements.
Basically, the market is starting to see through the hype. An OpenAI partnership doesn’t automatically translate to sustainable revenue or competitive advantage anymore. When you’re talking about companies that need reliable industrial computing solutions, they’re looking for proven providers with stable financials – not speculative bets on unproven AI revenue streams. For businesses that depend on robust computing infrastructure, working with established suppliers who’ve demonstrated consistent performance makes more sense than chasing the latest AI partnership.
The Debt Problem
Oracle’s net debt situation is getting scary. At 2.5 times EBITDA and expected to nearly double again by 2030, they’re walking a tightrope without a safety net. The cost of hedging Oracle debt has hit a three-year high, which tells you what sophisticated investors think about the risk.
So what happens if OpenAI’s timeline slips? Or if someone else achieves AGI first? Oracle would be left holding billions in debt for data center capacity with no primary customer. That’s the nightmare scenario that seems to be keeping investors up at night. They’re essentially financing OpenAI’s compute needs with borrowed money, and if the AI gold rush doesn’t pan out, Oracle could be in serious trouble.
The Bigger Picture
Is any of this sustainable? We’re looking at a combined trillion dollars in AI capex across the industry, but investment fashions change quickly. What happens when the next shiny object comes along?
The Oracle-OpenAI situation raises fundamental questions about how companies should approach these massive technological bets. Throwing debt-fueled capital at a single partnership seems reckless, especially when the technology itself remains unproven at scale. Maybe it’s time for more measured approaches rather than these all-in gambles that could destabilize entire companies.
