Oracle shares are on track for their worst quarter in nearly 25 years. What is worrying investors?

Shares in Oracle, the owner of cloud services and data centers for AI, have lost around 30% since the start of the quarter. On Friday, December 26, they rose 0.7% in trading. However, with only three trading sessions left before the end of the year, this quarter could be the worst for the company since 2001 — the time of the dot-com crash, CNBC writes. Investors are increasingly skeptical about Oracle's ability to quickly deploy additional infrastructure for OpenAI, which in September pledged to spend more than $300 billion on it, the TV channel explains.

Market concerns about the company's growing debt burden were compounded by the December publication of its quarterly report, in which it reported weaker-than-expected revenue and free cash flow. And during a conference call with investors, Oracle's new CFO Doug Carryng said that capital expenditures in fiscal year 2026 would total $50 billion — 43% more than the company had planned in September and twice the level of a year ago. At the same time, Oracle plans to enter into $248 billion in leasing agreements to increase its cloud infrastructure capacity, in addition to building its own data centers.

Such growth rates will require even greater debt issuance. In September, Oracle conducted one of the largest bond issues in the history of the technology sector, raising $18 billion. At the same time, Cering promised to maintain the company's investment credit rating. However, some market participants are skeptical and have begun buying credit default swaps (CDS) as insurance against borrower default.

"Oracle is already barely holding onto its investment rating. We doubt that the company will be able to fulfill all of its obligations without revising its contract with OpenAI," wrote analysts at D.A. Davidson in a December 12 review, as quoted by CNBC.

On the same day, Oracle had to refute a Bloomberg report that it would complete the construction of data centers for OpenAI in 2028, rather than in 2027 as previously planned. Shortly thereafter, information emerged that Blue Owl, a long-time investor in the company, did not plan to finance the construction of its new data centers, as it did not consider the investment sufficiently profitable. Oracle confirmed this information.

The contract with OpenAI is burning through Oracle's cash while making the company overly dependent on the ChatGPT developer, notes Suncoast Equity Management Managing Director Eric Lynch. "Can OpenAI deliver on demand?" he asks.

In October, Oracle unveiled its accelerated growth strategy: revenue is expected to increase from $57 billion in fiscal year 2025 to $225 billion in 2030. The company sees AI infrastructure built on Nvidia graphics processors as the main driver. However, as analysts surveyed by CNBC note, "hypergrowth" in the cloud business will come at the expense of profitability, as Oracle's core software business has much higher margins.

Wells Fargo analyst Michael Terrin began covering Oracle shares in December, assigning them a "buy" rating and a target price of $280, which is 41% higher than the current price. According to Terrin, if the company fulfills its contract with OpenAI, it could generate more than a third of its revenue by 2029. "They [Oracle] are gradually moving away from a cost-focused business model and betting on growth," Terrin noted in a note quoted by CNBC.

However, one of the company's main problems is its extremely low market share in cloud infrastructure, where Amazon, Microsoft, and Google are the leaders, despite the fact that Oracle's clients include Meta, Uber, and Elon Musk's xAI. According to the analyst, Oracle's success will depend on the implementation of AI infrastructure. "When customers see that the company has built one of the largest clusters for training AI models and is really getting the job done, then they will consider whether they should look into transferring their data to Oracle's infrastructure," he predicts.

Wall Street continues to view Oracle shares optimistically: 33 out of 46 analysts recommend buying these securities, and only one advises selling, according to MarketWatch data. Three months ago, there were three fewer bullish ratings. At the same time, the consensus target price has fallen by 12.6% since the quarterly report was published and now stands at around $294, which is 46% higher than current prices.

This article was AI-translated and verified by a human editor