Big Red borrows a lot of green, hopes AI will put it in the black
- Reference: 1763744413
- News link: https://www.theregister.co.uk/2025/11/21/oracle_ai_adventures/
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It all started so well in September. Despite lackluster profit and revenue figures, Oracle’s shares climbed 30 percent when its first quarter results for FY2026 revealed its remaining performance obligations (RPOs) were stuffed with the promise of $455 billion, largely for its cloud infrastructure, briefly allowing co-founder and CTO Larry Ellison to [1]claim the crown of the world’s richest person .
Jump forward a couple of months, and the chilly winds of winter are blowing in Oracle’s direction.
[2]
As Thanksgiving nears, financial traders have piled into Oracle’s credit-default swaps, in which the buyer gets some insurance against a debt default. The price of the financial instruments insuring against defaults for five years has tripled for Oracle in recent months, an indication of a perceived increase in risk.
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Meanwhile, investors have flooded into the market, trading more than $5 billion (£3.8bn) in Oracle CDS since September, according to Jigar Patel, a Barclays analyst. In the same period last year, just $200 million was traded, [5]according to Bloomberg .
To build out its cloud infrastructure in support of the AI goldrush, Oracle has committed to significant investment. Capital spending — largely on datacenters for AI — is set to hit $35 billion in fiscal 2026, up from $21 billion in fiscal 2025.
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Shortly after it released its Q1 results, Oracle announced a $300 billion cloud compute contract with OpenAI, and KeyBanc analysts warned that Big Red may need to [7]borrow roughly $100 billion over the next four years to build the datacenters required.
Oracle has already raised $18 billion in bonds, and is likely to raise $38 billion more with more than $100 billion on its balance sheet. Credit agency Moody’s kept Oracle’s rating the same. Still, [8]they introduced a new overhang owing to significant "counterparty risk" in Oracle's projected growth — the possibility that another party fails to meet its obligations.
At which point, it might be apt to point out that LLM provider OpenAI hasn't yet turned a profit, raising fair questions about its ability to pay Oracle.
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Oracle’s net debt is now more than double its EBITDA (earnings before interest, taxes, depreciation, and amortization), a measure of operational profit. That number has doubled since 2021, and forecasters expect it to double again by 2030.
[10]Nearly 3 out of 4 Oracle Java users say they've been audited in the past 3 years
[11]Oracle boasts $455B backlog from AI boom, but not all its new friends will live to pay up
[12]Oracle's masterclass in breach comms: Deny, deflect, repeat
[13]Oracle goes all-in on AI, customers still figuring out how they'll use it
Such is the reality of the situation, and the turning sentiment against AI generally, that [14]some financial commentators have been mean enough to point out that, since announcing its deal with OpenAI, Oracle’s market capitalization has fallen by more than the deal is reportedly worth.
To be clear, Oracle’s market capitalization is still roughly $620 billion, it has an investment-grade credit rating and rock-solid revenue from thousands of enterprise software customers. It is not going to default on its obligations anytime soon.
And the cooling temperature is unlikely to affect the optimism of Ellison, the company’s de facto leader. At a recent company event, [15]he was spreading his belief that the AI Oracle is helping to sustain would help solve climate change and grow plentiful food.
Nonetheless, it would be good to remember that, although the fall can be ablaze with orange, yellow and — yes — red, in time, the colors all eventually turn to brown. ®
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[1] https://www.theregister.com/2025/09/10/oracle_q1_results/
[2] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2aSDvCI3_c6afArwMBhdgcAAAAEE&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44aSDvCI3_c6afArwMBhdgcAAAAEE&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33aSDvCI3_c6afArwMBhdgcAAAAEE&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[5] https://www.bloomberg.com/news/articles/2025-11-20/a-hedge-against-ai-crash-emerges-as-oracle-cds-market-explodes
[6] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44aSDvCI3_c6afArwMBhdgcAAAAEE&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[7] https://www.theregister.com/2025/09/29/oracle_ai_debt/
[8] https://www.theregister.com/2025/09/22/moodys_raises_questions_over_oracles/
[9] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_software/aiml&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33aSDvCI3_c6afArwMBhdgcAAAAEE&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[10] https://www.theregister.com/2025/07/15/oracle_java_users_audited/
[11] https://www.theregister.com/2025/09/10/oracle_cloud_llm_cash/
[12] https://www.theregister.com/2025/04/02/oracle_breach_disaster_planning/
[13] https://www.theregister.com/2025/10/16/oracle_ai/
[14] https://www.ft.com/content/064bbca0-1cb2-45ab-85f4-25fdfc318d89
[15] https://www.theregister.com/2025/10/16/oracle_vectorizes_its_customers/
[16] https://whitepapers.theregister.com/
Borrow short, lend long was behing the financial crash 2008
There are two main risks associated with a bubble that has many of the hallmarks of the railway bubbles of the 19th century, where money was borrowed from all over to build new infrastructure from which profits would be enough to more than cover the loans plus interest. The first risk is that you never make the money back – that's okay, you issued equity, right? The other, and more important for loans or bonds, is that the inherent mismatch the lifetimes of the money you borrowed and the money you spent (counts financially as a loan) can severely impair your ability to pay back, not just those bonds but anything else. And as the risk is perceived to grow: RoI isn't as great or as fast as you expected; the costs of the infrastructure are higher than you thought (very likely, especially power) and it's taking longer; the competition is faster or cheaper.
If it looks like a bubble and blows up like a bubble, it probably is a bubble.™
AI is not magic.
You will not solve all the big problems in society just by having it.
And if you build a datacentre, you will have to upgrade the chips (and probably the boards they are on, power and the rest) in, what, 3 years. If you don't, your punters will shift to a shiny newer one. So all this kit you are 'investing' in, you are actually subscribing to. That's why that bloke from Nvidia keeps smiling. On what planet is a subscription an investment?
As mentioned above, AI has all the hallmarks of railway mania and all the other bubbles that we look back on with amusement and mild contempt.
If you repeat past financial idiocy, don't expect the outcome to be different this time round.
Oracle should not have corporate debt
IF they do then the stockholders should blame its dear leader for taking too much out of the company.
If they can't fund their tow dipping into AI from the giant profits that they are raking in then perhaps the company should be left to fail (miserably)