Oracle Stock Just Tumbled: Here's One Reason Why

Core Viewpoint - Oracle is facing investor skepticism regarding its AI infrastructure strategy and profitability despite a significant backlog of future revenue, including a $300 billion deal with OpenAI [3][4][10]. Revenue and Growth Potential - Oracle has over half a trillion dollars in future revenue in its backlog, which includes a major multi-year deal with OpenAI [3]. - If executed as planned, Oracle's revenue growth is expected to accelerate significantly in the coming years [3]. Capital Expenditure and Profitability Concerns - Investors are worried about Oracle's increased capital spending on AI infrastructure and whether it will yield a reasonable return on investment [4]. - Oracle's AI infrastructure business is projected to achieve adjusted gross margins of 30% to 40%, but current gross margins were reported at only 14% for the quarter ending in August [5][6]. - The company has raised its full-year capital spending outlook by $15 billion, aiming to generate an additional $4 billion in revenue for fiscal 2027, which raises questions about the return on investment [7][8]. Market Performance and Investor Sentiment - Oracle's stock has declined nearly 40% from its 52-week high, indicating a lack of investor confidence in the company's AI growth narrative [10]. - The company's substantial backlog relies heavily on OpenAI securing adequate funding, which adds uncertainty to Oracle's revenue conversion prospects [10]. Debt and Financial Risk - Oracle's total debt stands at $108 billion, which raises concerns about its financial stability as it funds its AI data center expansion [11]. - The company's debt situation could amplify risks if the anticipated demand for AI infrastructure does not materialize [12].