Oracle's AI Gamble: Big Spends, Bigger Problems

Oracle's stock has taken a nosedive, dropping 45% from its peak in September. This week alone, it lost 14% of its value after a disappointing earnings report. The company spent a whopping $12 billion on capital expenditures last quarter, way more than the $8. 25 billion analysts expected. To make matters worse, Oracle raised its forecast for fiscal 2026 spending by another $15 billion. Most of this money is going into data centers for OpenAI, Oracle's $300 billion partner in the AI world. Investors are worried about how Oracle will pay for all this. The company's main revenue streams, cloud services and cloud infrastructure, didn't meet expectations either. Analysts are calling Oracle's AI expansion "debt-fueled, " even though Oracle doesn't directly link its debt to specific projects. Oracle's AI strategy is facing some serious roadblocks. Bloomberg reported that Oracle has delayed the completion of some U. S. data centers for OpenAI from 2027 to 2028 due to labor and material shortages. Jonathan Koomey, a data-center researcher, explained that the AI boom is hitting a wall. The digital world moves fast, but the physical world doesn't. Data centers are where these two worlds collide. One of Oracle's biggest projects is Project Jupiter, a massive data-center complex in New Mexico. This $160 billion-plus mega-campus is one of the most ambitious AI infrastructure projects ever. But even with all this investment, Oracle is playing catch-up in the AI game. It's also putting a lot of eggs in one basket by tying most of its spending to OpenAI. The physical constraints Koomey talks about apply to all big tech companies. But Oracle stands out because it's late to the AI party and heavily reliant on OpenAI. Koomey pointed out that manufacturers eventually catch up, but it takes time. Reality has a way of intervening. Oracle's stock slide is dramatic, but the bond-market reaction is even more telling. Oracle's bond yields have skyrocketed, with some newer notes now trading like junk. This signals that investors are starting to worry about the risk of lending to Oracle for its AI buildout. For decades, tech companies paid for growth with earnings. Now, many are turning to credit markets to fund their expansions. The five biggest AI hyperscalers—Google, Meta, Amazon, Microsoft, and Oracle—have issued roughly $121 billion in bonds this year to fund AI data-center buildouts. This is a huge shift toward debt financing for infrastructure. Oracle has made some of the biggest deals, like its $18 billion September bond sale. Its total debt is around $100 billion. The other four tech giants are in stronger cash positions and have higher credit ratings. So while Oracle isn't the only one tapping the debt markets, it's one of the most leveraged. Debt investors don't need blowout returns; they just need certainty that they'll get their money back. If confidence wavers, yields rise. Anuj Kapur, CEO of CloudBees, compared this moment to the dot-com era. There's enormous promise, but also enormous uncertainty about when the returns will show up. Koomey saw a simple truth. There's a disconnect between tech people with lots of money who move fast and the people who make the equipment and build the facilities, who need years to scale up their manufacturing.