Oracle (NYSE: ORCL) is down 56% from its peak about a year ago. The company's stock surged after signing a $300 billion agreement with OpenAI. However, doubts emerged about whether OpenAI could fulfill its obligations under the agreement, which sent Oracle stock tumbling.
Also, Oracle has had to borrow heavily to build the infrastructure to fund that deal, which could cause investors deep pain if that investment does not yield positive returns. Nonetheless, even if OpenAI falters, I do not think Oracle's debt load will derail its cloud ambitions, and here's why. Act 2 Could Be 15x Bigger.
Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we're only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout.
Continue » Admittedly, Oracle has taken on significant risk by borrowing heavily to fund its infrastructure build-out. As of the first quarter of fiscal 2027 (ended Aug. 31), its total debt was just over $125 billion. Considering that the company's book value is only about $67 billion, that places considerable strain on its balance sheet.
If the industry suffered a severe AI bust, it could undermine the investment case in Oracle stock. Also, the company spent over $28 billion on capital expenditures (capex) in fiscal Q1 alone, and that occurred after capex was nearly $56 billion in fiscal 2026. Although demand for AI infrastructure is high and growing fast, a sudden reversal of this trend could further spook Oracle's investors.
Nonetheless, even if the feared AI bust occurs, investors should remember that the dot-com bust did not destroy the internet. Likewise, AI is unlikely to disappear, even if its development pauses for a time. Moreover, investors who follow Oracle closely might notice that the AI agreements have not stopped with OpenAI.
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