Oracle’s rapid descent from market darling to market warning sign is revealing something deeper about the AI boom, experts say: no matter how euphoric investors became over the last two years, the industry can’t outrun the laws of physics—or the realities of debt financing.
Shares of Oracle have plunged 45% from their September high and lost 14% this week after a messy earnings report revealed it spent $12 billion in quarterly capital expenditures, higher than the $8.25 billion expected by analysts.
Earnings guidance was also weak, and the company raised its forecast for fiscal 2026 capex by another $15 billion. The bulk of that is going into data centers dedicated to OpenAI, Oracle’s $300 billion partner in the AI cycle.
“We have ambitious achievable goals for capacity delivery worldwide,” Oracle co-CEO Clay Magouyrk said on an earnings call this week.
Investors worry how Oracle will pay for these massive outlays as its underlying revenue streams, cloud revenue and cloud-infrastructure sales, also fell short of Wall Street’s expectations. Analysts have described its AI buildout as debt-fueled, even though the company does not explicitly link specific debt to specific capital projects in its filings.
Eventually, investors will expect to see returns on the industry’s massive cap-ex expenses — half a trillion dollars in 2024, another $550-$600 billion in 2025, and likely that much more again in 2026.
Oracle might have made the headlines in today’s papers, but industry leader OpenAI will lose anywhere from $10-$20 billion in 2025 alone, on an estimated $13 billion in revenues. Again, that’s due to massive capital expenditures that are warping the market for chips.
I’d sure love to know in advance who will survive the inevitable shakeout (wouldn’t we all?), but I’m reasonably certain it’ll be brutal.