Oracle's Debt-Fueled AI Ambitions Raise Caution

about 1 month ago

Michael Cembalest

"the other big news in the AI space was this Oracle OpenAI partnership and Oracle stock jumped by 25% to 30%. I is promising to pay 60 billion a year... And there's a chart we have in here that's kind of a staggering one. The debt to equity ratios at Amazon are 50%, 30% at Microsoft, even less at Meta and Google. At Oracle, they're 500%."

Oracle is highlighted for its ambitious plans in the AI space through a high-profile partnership with OpenAI, which saw its stock jump significantly. However, the commentary draws attention to Oracle's extremely high 500% debt-to-equity ratio compared to its peers, flagging potential risks as the company will need to borrow heavily to finance its massive capital spending (estimated at building out four and a half gigawatts of power capacity). This creates a mixed outlook where considerable AI-driven growth might be offset by financial vulnerabilities.

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