Oracle, Now the Symbol of AI Risk

In September, Oracle disclosed in its second-quarter earnings release that its remaining performance obligations (RPO) had surged 359% year-on-year. On expectations for growth in its GPU cloud division, Oracle (ORCL) shares spiked as much as 43%. However, as concerns over an AI bubble have recently spread rapidly on Wall Street, the stock has given back all of its pre-earnings gains and fallen even further below that level.

In a research article published on September 17, I confirmed that most of the increase in RPO (remaining performance obligations) came from OpenAI, the developer of the ChatGPT model. I pointed out that if OpenAI’s revenue is estimated at 13 billion dollars this year, then its signing of a five‑year cloud computing contract with Oracle worth 60 billion dollars per year assumes that annual revenue will increase by more than fivefold at least by the year after next.

In that piece, I described Oracle’s strategy for funding capex—distinct from the three major hyperscalers, Amazon, Microsoft, and Alphabet (Google)—as follows:

Even if the godfather of “financial engineering” showed up, a company with negative cash flow cannot continue operating without financing activities—raising cash by issuing equity or debt. Oracle’s cash on hand was nowhere near enough to cover the capex required to fulfill its contract with OpenAI, so it needed large‑scale funding. A few days later, at the end of September, it issued 18 billion dollars of new corporate bonds.

For a company of Oracle’s size, issuing 18 billion dollars of bonds is not in itself shocking. Immediately after the earnings release, the CDS premium on Oracle’s corporate debt—effectively the insurance premium paid in exchange for a guarantee of payment in the event the borrower defaults—showed little movement and remained below the U.S. investment‑grade corporate bond index at a stable level. It has since exploded, soaring more than threefold. One hundred basis points equals 1%, so if an investor who put 10 billion into Oracle bonds wanted full notional coverage, the premium alone would amount to a staggering 100 million.

Microsoft, which invested astronomical sums in OpenAI from the early days, is its largest shareholder, and a substantial portion of that investment was paid out in the form of GPU cloud credits. One of Microsoft’s investment conditions barred OpenAI from using any cloud service other than Azure, its in‑house platform. But as Sam Altman repeatedly complained of a shortage of GPU computing resources, Microsoft relaxed that clause and allowed OpenAI to sign contracts with other cloud providers such as Oracle and Google.

From a growth perspective, it is a puzzling decision for Microsoft to effectively hand over future cloud revenue to competitors. But it reflects a clear awareness of the risk that the astronomical sums required to build GPU data centers could ultimately evaporate.

Oracle owns stable businesses such as database and ERP software, so few people seriously believe the company is about to go under. But among the major players, Oracle is currently the most aggressive investor in AI data centers. That is why investors worried about a bubble are using Oracle’s stock and bonds as a hedge against AI risk by taking the other side of the trade.