The market capitalization of Oracle (ORCL) has lost about $360 billion as a result of the stock's roughly 40% decline from its September peak.
Due to Oracle's second quarter results failing to allay a major investor concern that the business is overly dependent on OpenAI (OPAI.PVT), about $67 billion of that loss happened on Thursday alone.
On September 10, Oracle's stock hit a record due to its AI-fueled growth objectives, briefly making its founder, Larry Ellison, the richest person in the world.
The company informed investors back in September that its remaining performance obligations (RPO), or the value of its future revenue from signed customer contracts, had increased by about 360% to $455 billion.
As part of the Stargate project, it was later discovered that OpenAI, the developer of ChatGPT, was responsible for at least $300 billion of its customer obligations. Its stock has suffered ever since.
Investors have become even more cautious due to growing worries about OpenAI's growing expenses, which are expected to reach $1.4 trillion as a result of its deal spree with companies like Nvidia (NVDA), CoreWeave (CRWV), AMD (AMD), Broadcom (AVGO), and Oracle, as well as growing competition from Google's (GOOG) Gemini models.
Stefan Slowinski, an analyst at BNP Paribas, told Yahoo Finance that "the market's perception of OpenAI has clearly reversed in the last couple of months."
"It's clear that the OpenAI ecosystem has suffered as a result." Slowinski and other Wall Street analysts concur that Oracle's greatest risk is OpenAI's possible incapacity to cover its extensive AI infrastructure obligations.
Sam Altman, the CEO of OpenAI, issued a "code red" last week, citing increased competition from Google as a danger to the startup's capacity to sell its AI products and reach its aggressive revenue goals.
According to DA Davidson analyst Gil Luria, "Oracle is in this difficult situation where they have to build out [data center] capacity for this customer and borrow a lot of money to do that when there's a very high uncertainty this customer will be able to pay for that capacity."
Investor concerns were only heightened by Oracle's second quarter earnings this week. Both the company's $12 billion in capital expenditures and its $10 billion free cash flow loss were significantly greater than the $6 billion outflow projected. Additionally, Oracle significantly increased its full-year capital expenditure projection from $35 billion to $50 billion.
It didn't help that executives tried to allay concerns about the company's heavy debt burden, growing expenses, and reliance on OpenAI. Oracle's new co-CEO Clay Magouyrk stated that the company had more than 700 AI clients in a call that followed the company's earnings announcement.
If demand from any one customer doesn't materialize, he claimed Oracle could simply reroute its AI infrastructure to serve other customers in "hours."
In an interview, TD Cowen analyst Derrick Wood said, "If there were a problem where OpenAI couldn't pay their bills, they have the quick ability to repurpose the infrastructure for other customers."
Additionally, the business promised to maintain an investment-grade credit rating and stated that it won't need to spend more than $100 billion to finish its data center projects.
Investors have been concerned about the company's bonds' BBB rating, which is only a few steps away from junk status. Additionally, Oracle noted that new commitments from Nvidia, Meta (META), and other clients contributed to a $68 billion increase in its RPO in the most recent quarter.
Theoretically, such remarks should have satisfied investors, according to Slowinski. However, that was thwarted by more general worries about the return on tech companies AI investments. "The market is simply saying, 'We don't have confidence in the returns and all this capex,'" he stated.
