“This is a huge liability and credit risk for Oracle. Your main customer, by far the largest customer, is a venture capital-funded start-up,” said Andrew Chang, director of S&P Global.
OpenAI faces questions about how it plans to meet its commitments to spend $1.4 trillion on AI infrastructure over the next eight years. It has struck deals with several big tech groups, including rivals Oracle.
Of the five hyperscalers – which include Amazon, Google, Microsoft and Meta – Oracle is the only one with negative free cash flow. According to JPMorgan, its debt-to-equity ratio has soared to 500 percent, far higher than Amazon’s 50 percent and Microsoft’s 30 percent.
While all five companies have seen their cash-to-asset ratios decline significantly in recent years amid a surge in spending, JPMorgan found that Oracle has by far the lowest.
JPMorgan analysts note “tension between” [Oracle’s] “Aggressive AI build-out ambitions and the limitations of its investment-grade balance sheet.”
Analysts also noted that Oracle’s data center leases are for much longer terms than the contract to sell capacity to OpenAI.
Oracle has signed at least five long-term lease agreements for US data centers that will eventually be used by OpenAI, resulting in $100 billion of off-balance-sheet lease commitments. The sites are at various stages of construction, some of which are not expected to be ready until next year.
Safra Catz, Oracle’s sole chief executive from 2019 until she stepped down in September, resisted expanding its cloud business because of the huge expenses required. He was replaced by co-CEOs Clay Maguire and Mike Sicilia as part of Oracle’s pivot toward a new era focused on AI.
Katz, now executive vice chairman of Oracle’s board, has exercised stock options and sold $2.5 billion of his shares this year, according to U.S. regulatory filings. He had announced plans to exercise his stock options at the end of 2024.
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