Larry Ellison

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Oracle shares slide on $15B increase in data center spending

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Oracle’s Big Tech rivals such as Amazon, Microsoft, and Google have helped reassure investors about their large capital investments by posting strong earnings from their vast cloud units.

But in the last quarter, Oracle’s cloud infrastructure business, which includes its data centers, posted worse than expected revenues of $4.1 billion. Ellison’s company is also relying more heavily on debt to fuel its expansion.

Net income rose to $6.1 billion in the quarter, boosted by a $2.7 billion pre-tax gain from the sale of semiconductor company Ampere to SoftBank.

The company added an additional 400 MW of data center capacity in the quarter, Magouyrk told investors. Construction was on track at its large data center cluster in Abilene, Texas, which is being built for OpenAI, he added.

Magouyrk, who took over from Safra Catz in September, said there was ample demand from other clients for Oracle’s data centers if OpenAI did not take up the full amount it had contracted for.

“We have a customer base with a lot of demand such that whenever we find ourselves [with] capacity that’s not being used, it very quickly gets allocated,” he said.

Co-founded by Ellison as a business software provider, Oracle was slow to pivot to cloud computing. The billionaire remains chair and its largest shareholder.

Investors and analysts have raised concerns in recent months about the upfront spending required by Oracle to honor its AI infrastructure contracts. Moody’s in September flagged the company’s reliance on a small number of large customers such as OpenAI.

Morgan Stanley forecasts that Oracle’s net debt will soar to about $290 billion by 2028. The company sold $18 billion of bonds in September and is in talks to raise $38 billion in debt financing through a number of US banks.

Brent Thill, an analyst at Jefferies, said Oracle’s software business—which generated $5.9 billion in the quarter—provided some buffer amid accelerated spending. “But the timing mismatch between upfront capex and delayed monetization creates near-term pressure.”

Doug Kehring, principal financial officer, said the company was renting capacity from data center specialists to reduce its direct borrowing.

The debt to build the Abilene site was raised by start-up Crusoe and investment group Blue Owl Capital, and Oracle has signed a 15-year lease for the site.

“Oracle does not pay for these leases until the completed data centers… are delivered to us,” Kehring said, adding that the company was “committed to maintaining our investment-grade debt ratings.”

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Oracle hit hard in Wall Street’s tech sell-off over its huge AI bet

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“That is a huge liability and credit risk for Oracle. Your main customer, biggest customer by far, is a venture capital-funded start-up,” said Andrew Chang, a director at S&P Global.

OpenAI faces questions about how it plans to meet its commitments to spend $1.4 trillion on AI infrastructure over the next eight years. It has struck deals with several Big Tech groups, including Oracle’s rivals.

Of the five hyperscalers—which include Amazon, Google, Microsoft, and Meta—Oracle is the only one with negative free cash flow. Its debt-to-equity ratio has surged to 500 percent, far higher than Amazon’s 50 percent and Microsoft’s 30 percent, according to JPMorgan.

While all five companies have seen their cash-to-assets ratios decline significantly in recent years amid a boom in spending, Oracle’s is by far the lowest, JPMorgan found.

JPMorgan analysts noted a “tension between [Oracle’s] aggressive AI build-out ambitions and the limits of its investment-grade balance sheet.”

Analysts have also noted that Oracle’s data center leases are for much longer than its contracts to sell capacity to OpenAI.

Oracle has signed at least five long-term lease agreements for US data centers that will ultimately be used by OpenAI, resulting in $100 billion of off-balance-sheet lease commitments. The sites are at varying levels of construction, with some not expected to break ground until next year.

Safra Catz, Oracle’s sole chief executive from 2019 until she stepped down in September, resisted expanding its cloud business because of the vast expenses required. She was replaced by co-CEOs Clay Magouyrk and Mike Sicilia as part of the pivot by Oracle to a new era focused on AI.

Catz, who is now executive vice-chair of Oracle’s board, has exercised stock options and sold $2.5 billion of its shares this year, according to US regulatory filings. She had announced plans to exercise her stock options at the end of 2024.

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OpenAI and partners are building a massive AI data center in Texas

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Stargate moves forward despite early skepticism

When OpenAI announced Stargate in January, critics questioned whether the company could deliver on its ambitious $500 billion funding promise. Trump ally and frequent Altman foe Elon Musk wrote on X that “They don’t actually have the money,” claiming that “SoftBank has well under $10B secured.”

Tech writer and frequent OpenAI critic Ed Zitron raised concerns about OpenAI’s financial position, noting the company’s $5 billion in losses in 2024. “This company loses $5bn+ a year! So what, they raise $19bn for Stargate, then what, another $10bn just to be able to survive?” Zitron wrote on Bluesky at the time.

Six months later, OpenAI’s Abilene data center has moved from construction to partial operation. Oracle began delivering Nvidia GB200 racks to the facility last month, and OpenAI reports it has started running early training and inference workloads to support what it calls “next-generation frontier research.”

Despite the White House announcement with President Trump in January, the Stargate concept dates back to March 2024, when Microsoft and OpenAI partnered on a $100 billion supercomputer as part of a five-phase plan. Over time, the plan evolved into its current form as a partnership with Oracle, SoftBank, and CoreWeave.

“Stargate is an ambitious undertaking designed to meet the historic opportunity in front of us,” writes OpenAI in the press release announcing the latest deal. “That opportunity is now coming to life through strong support from partners, governments, and investors worldwide—including important leadership from the White House, which has recognized the critical role AI infrastructure will play in driving innovation, economic growth, and national competitiveness.”

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Trump announces $500B “Stargate” AI infrastructure project with AGI aims

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Video of the Stargate announcement conference at the White House.

Despite optimism from the companies involved, as CNN reports, past presidential investment announcements have yielded mixed results. In 2017, Trump and Foxconn unveiled plans for a $10 billion Wisconsin electronics factory promising 13,000 jobs. The project later scaled back to a $672 million investment with fewer than 1,500 positions. The facility now operates as a Microsoft AI data center.

The Stargate announcement wasn’t Trump’s only major AI move announced this week. It follows the newly inaugurated US president’s reversal of a 2023 Biden executive order on AI risk monitoring and regulation.

Altman speaks, Musk responds

On Tuesday, OpenAI CEO Sam Altman appeared at a White House press conference alongside Present Trump, Oracle CEO Larry Ellison, and SoftBank CEO Masayoshi Son to announce Stargate.

Altman said he thinks Stargate represents “the most important project of this era,” allowing AGI to emerge in the United States. He believes that future AI technology could create hundreds of thousands of jobs. “We wouldn’t be able to do this without you, Mr. President,” Altman added.

Responding to off-camera questions from Trump about AI’s potential to spur scientific development, Altman said he believes AI will accelerate the discoveries for cures of diseases like cancer and heart disease.

Screenshots of Elon Musk challenging the Stargate announcement on X.

Screenshots of Elon Musk challenging the Stargate announcement on X.

Meanwhile on X, Trump ally and frequent Altman foe Elon Musk immediately attacked the Stargate plan, writing, “They don’t actually have the money,” and following up with a claim that we cannot yet substantiate, saying, “SoftBank has well under $10B secured. I have that on good authority.”

Musk’s criticism has complex implications given his very close ties to Trump, his history of litigating against OpenAI (which he co-founded and later left), and his own goals with his xAI company.

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