“This is a huge liability and credit risk for Oracle. Your top customer, your largest customer by far, is a venture capital-funded startup,” said Andrew Chang, director of S&P Global.
OpenAI faces questions about how it plans to meet its commitment to spend $1.4 trillion on artificial intelligence infrastructure over the next eight years. It has struck deals with several major technology groups, including Oracle competitors.
Of the five hyperscalers, which include Amazon, Google, Microsoft and Meta, Oracle is the only one with negative free cash flow. According to JPMorgan, its debt-to-equity ratio has risen to 500 percent, far higher than Amazon's 50 percent and Microsoft's 30 percent.
While all five companies' cash-to-asset ratios have fallen significantly in recent years amid a spending boom, Oracle's is by far the lowest, JPMorgan found.
JPMorgan analysts noted “tensions between [Oracle’s] aggressive ambitions for the development of artificial intelligence and the limits of its investment balance sheet.”
Analysts also note that Oracle's data center leases are much longer than its contracts to sell capacity to OpenAI.
Oracle has signed at least five long-term lease agreements for U.S. data centers that will eventually be used by OpenAI, resulting in off-balance sheet lease liabilities of $100 billion. The projects are in various stages of construction, with some not expected to begin until next year.
Safra Katz, Oracle's sole chief executive from 2019 until her resignation in September, resisted expanding its cloud business because of the huge costs required. She was replaced by co-CEOs Clay Maguirk and Mike Sicilia as part of Oracle's transition to a new era focused on artificial intelligence.
Katz, who is now Oracle's executive vice chairman, exercised stock options and sold $2.5 billion of his shares, according to U.S. regulatory filings. She announced plans to exercise her stock options at the end of 2024.
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