Oracle Might Be the Riskiest AI Stock as Bubble Fears Grow

Core Viewpoint - The tech industry, particularly companies like Oracle, is facing significant risks due to heavy debt accumulation and overinvestment in AI infrastructure, which may not yield the expected returns [1][3]. Group 1: Debt and Financial Position - Oracle's total debt has reached $91 billion, with an additional $14 billion in operating lease liabilities, marking a significant increase from minimal debt levels in the early 2010s [4]. - The company has spent billions on stock buybacks funded by debt, leading to a substantial interest payment of $923 million in the most recent quarter, consuming over 20% of its operating income [4]. - Oracle issued $18 billion in bonds in September, including long-maturity bonds, which is considered unusual for a rapidly changing tech industry [5]. Group 2: AI Infrastructure Investments - Oracle's AI infrastructure deals, including a reported $300 billion agreement with OpenAI, will necessitate additional debt, further straining its financial position [5][10]. - The company's free cash flow has turned negative as it invests heavily in AI data centers to meet contractual obligations, indicating potential cash flow challenges ahead [6]. - Projected adjusted gross margins for Oracle's AI infrastructure business are between 30% and 40%, significantly lower than the 40% to 60% margins typical for cloud computing and even further from the high margins associated with its core software business [7]. Group 3: Market Competition and Risks - OpenAI, a key partner for Oracle, may face challenges in maintaining a competitive edge in the AI market, which could impact Oracle's investments if OpenAI fails to increase user engagement and platform usage [8][10]. - OpenAI is estimated to need $207 billion in funding through 2030, raising concerns about its ability to sustain operations and the potential for Oracle to be left with underutilized AI infrastructure if OpenAI encounters financial difficulties [9][10]. - The overall investment strategy in AI by Oracle is described as a high-risk, potentially catastrophic endeavor, with significant implications for the company's future if the AI boom does not materialize as expected [11].