Why Oracle Stock Tumbled 23% in November

Core Viewpoint - The partnership between Oracle and OpenAI, initially seen as a major opportunity, is now viewed as increasingly risky due to concerns over debt and OpenAI's financial viability [1][2][3]. Group 1: Oracle's Financial Situation - Oracle reported a significant increase in its backlog to $455 billion, largely driven by a $300 billion cloud computing deal with OpenAI [1]. - Following a 23.1% drop in November, Oracle's post-earnings gains have been completely erased, indicating a rapid decline in investor confidence [2]. - Oracle's balance sheet is heavily burdened with debt, having sold $18 billion in debt recently and reportedly seeking an additional $38 billion to support its OpenAI contract [3]. Group 2: Risks Associated with OpenAI - The cost of five-year credit default swaps for Oracle's debt has surged to the highest level since 2008, reflecting growing investor concerns about Oracle's debt strategy [4]. - OpenAI has entered into multiple high-value contracts, including a $38 billion deal with Amazon Web Services and a $250 billion agreement with Microsoft Azure, despite lacking the funds to fulfill these obligations [5]. - There is a significant risk that Oracle may invest heavily in data centers for OpenAI, only for OpenAI to be unable to meet its financial commitments [6]. Group 3: Competitive Landscape and Future Outlook - OpenAI's CEO has indicated a "code red" situation due to increased competition, which may hinder its ability to generate revenue [6]. - If Oracle's strategy pays off, the company could see substantial revenue growth in the next five years, but the risks involved necessitate cautious investor sentiment [9].