How Oracle became a ‘poster child’ for AI bubble fears

In 2025, Oracle (ORCL) stock experienced a rollercoaster ride that encapsulated the ongoing debate within the tech industry about the potential of artificial intelligence (AI). The year began with a bang as Oracle announced a groundbreaking joint venture with OpenAI and SoftBank called Stargate, pledging a massive $500 billion investment in US AI infrastructure. This news, unveiled by President Trump in the Oval Office alongside Oracle’s Larry Ellison, sent the stock price soaring.

The optimism surrounding AI continued to drive Oracle’s shares higher throughout the year, especially after impressive quarterly earnings reports in June and September. Projections indicated that AI-driven deals would propel the company’s cloud segment revenue to an impressive $166 billion by 2030. At one point, Ellison even briefly held the title of the world’s wealthiest person.

However, the initial enthusiasm for AI soon gave way to skepticism among investors. Concerns mounted over the escalating use of debt to finance AI initiatives in tech companies, particularly as the tangible benefits of these investments remained uncertain. This unease was reflected in the growing demand for Big Tech credit default swaps (CDS), indicating a rising apprehension about the industry’s financial stability.

Oracle found itself at the center of these debt-related fears, having issued nearly $26 billion in bonds in the course of the year. The widening of the company’s CDS spreads signaled a heightened concern about its creditworthiness, with the cost of insuring against default reaching levels not seen since 2009.

The tech firm’s latest earnings results revealed a significant increase in total debt, rising 40% from the previous year to $124 billion. Simultaneously, cash outflows surged from $2.7 billion to $10 billion, painting a worrisome financial picture. Analysts highlighted Oracle’s disclosure of $248 billion in upcoming lease commitments for data centers, a substantial obligation not fully reflected in its balance sheet.

Morningstar analyst Luke Yang cautioned that Oracle now had limited margin for error in executing its strategy due to its mounting debt burden. The company’s constrained free cash flow compared to other tech giants like Microsoft and Alphabet posed a significant challenge in managing its financial obligations.

Furthermore, Oracle’s partnership with OpenAI, a key player in the AI landscape, introduced additional uncertainties for the company. The revelation that OpenAI accounted for a substantial portion of Oracle’s future revenue commitments raised doubts among investors about the developer’s ability to meet ambitious targets in a competitive market dominated by tech behemoths like Google.

As OpenAI’s expenses surged to a staggering $1.4 trillion over the next eight years, Oracle faced mounting pressure to navigate a complex landscape where the monetization of AI technologies remained a work in progress. The evolving dynamics in the AI sector and Oracle’s financial commitments underscored the challenges and risks inherent in the tech industry’s quest for innovation and growth. Investors have been cautious due to the commitments made by tech firms in the AI space. There is skepticism surrounding the projected demand for AI and whether it will match up to what companies like Oracle are investing in. Hedgeye Risk Management analyst Andrew Freedman expressed concerns about whether the anticipated demand will materialize in a way that justifies the investments being made.

Oracle has reassured investors that it has the flexibility to repurpose its AI infrastructure for other clients if necessary. However, there are worries about potential delays in Oracle’s data center projects, which could impact the timeline for the company to see returns on its AI investments. Reports have emerged suggesting delays in the completion of data centers tied to contracts with OpenAI, but Oracle has denied any setbacks. Additionally, Oracle’s partner on data centers, Blue Owl, reportedly backed out of financing a major facility in Michigan, leading Oracle to seek funding from a different equity partner.

This investor skepticism comes at a time when Oracle is undergoing a leadership change, with co-CEOs taking over from longtime chief executive Safra Catz. Despite the uncertainty, some investors like Johnson remain bullish on Oracle, citing the company’s track record of delivering on promises and outperforming competitors.

As Oracle navigates these challenges, it will be crucial for the company to demonstrate its ability to execute on its AI strategy and address investor concerns. The technology sector is constantly evolving, and Oracle will need to stay agile and responsive to market dynamics to maintain its competitive edge.

Laura Bratton is a reporter for Yahoo Finance. Follow her on Bluesky @laurabratton.bsky.social. Email her at laura.bratton@yahooinc.com.

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