Oracle Faces Sharp Market Fallout after OpenAI Deal

Oracle experiences a colossal loss of valuation following its collaboration with OpenAI, which is worth billions of dollars, and creates panic in investors.

Oracle is under considerable market pressure following its 300 billion dollar alliance with OpenAI, which resulted in a significant loss of 315 billion dollars in company valuation. The deal that aimed to make Oracle offer one of the primary compute partners of OpenAI has instead created anxiety among investors about increasing debts, expenditure and reliance on one AI customer.

Oracle shares have dropped sharply since the announcement, when large technology indexes and competitors such as Microsoft and Amazon were all stable. Analysts attribute the sell-off to fears that Oracle must be too risky to operate successfully in the long term with its strategy of doubling its debt, increasing capex up to 80 billion dollars by 2029, and relying on OpenAI as the future of its cloud revenue.

It is increasing financial stress. The net debt of Oracle has exceeded two times as compared to 2021 and the cash flow is estimated to be negative over the next five years. Premiums on credit-default swaps have also rallied to three-year highs, indicating increased worries about default.

The larger OpenAI boost also seems to die down. Whereas the industry previously celebrated the announcement of chipmakers, recent OpenAI-related deals have had a soft or negative stock reaction across the entire industry.

It is now approaching the solemn stage of AI capex savings; they are always seeking discipline rather than stardazzle. Until the time being, the message Wall Street sends Orange is unmistakable: high risk without a clear proposed payoff is not going to win the trust back.