Oracle(US:ORCL) Hua Er Jie Jian Wen·2025-12-10 11:40Core Viewpoint - Oracle is facing significant market concerns regarding its high debt levels, negative free cash flow, and the uncertainty surrounding its partnership with OpenAI, which may overshadow any positive signals from its upcoming earnings report [1][3]. Debt Risk Focus - Oracle's debt situation has become a focal point for market scrutiny, with the company issuing hundreds of billions in bonds through direct issuance and project financing in recent months [3]. - Analysts highlight that Oracle's balance sheet is under pressure, with negative free cash flow and high leverage, raising concerns about its financial stability [3]. - Despite expectations of an 11% increase in adjusted earnings per share and a 15% revenue growth year-over-year, the company's gross margin is projected to decline from 71% to approximately 69% due to capital-intensive investments [3][4]. Capital Expenditure Concerns - The company's capital expenditure for the second fiscal quarter ending in November is expected to reach $8.2 billion, a significant increase from less than $4 billion in the same period last year [4]. - Free cash flow is anticipated to be negative $5.9 billion, contrasting with a positive $2.7 billion in the previous year [4]. OpenAI Dependency Issues - Investors are closely monitoring Oracle's revenue concentration risk, particularly following its large-scale cloud computing service agreement with OpenAI [5]. - The deep partnership with OpenAI raises strategic risk concerns, especially as OpenAI faces challenges, which could exacerbate Oracle's risk profile [5]. - Oracle executives are likely to be questioned about the progress of their collaboration with OpenAI during the upcoming earnings call, and revealing new significant clients could alleviate concerns about customer concentration [5]. Valuation Concerns - Despite a notable decline in stock price from its peak, Oracle's valuation remains high, with a forward P/E ratio of approximately 30, significantly above its historical average of around 17 and higher than the Nasdaq 100's valuation of about 26 [6]. Market Reaction Expectations - Regardless of the earnings report outcome, options traders anticipate a 10% stock price fluctuation post-report, indicating that the core issue lies in market confidence regarding Oracle's growth trajectory rather than the growth itself [7].