Oracle's Stock Price Plummets

Oracle's stock has experienced a significant decline, driven by concerns over its debt and reliance on AI contracts. The company's shares have fallen considerably from their peak in early September, with analysts projecting a substantial increase in net adjusted debt by 2028. This surge in debt is primarily to fund new AI and cloud data centres, positioning Oracle to compete with major players like Microsoft and Amazon.

Despite securing a large $300 billion cloud agreement with OpenAI, doubts persist about Oracle's ability to sustain profitable growth in the AI sector. Reports indicate that Oracle's cloud business is operating on narrow margins compared to competitors. The market is reacting negatively to Oracle's increased borrowing, with credit-default swaps reaching a two-year high, signalling investor anxiety.

Oracle's financial strategy of heavy investment in AI infrastructure, while aiming for long-term gains, faces scrutiny regarding its short-term profitability and the sustainability of its debt levels. The company's ability to convert its contract backlog into revenue and manage its capital expenditure will be crucial in determining its future market performance.