Oracle might have an OpenAI problem.
Oracle (ORCL) stock has tumbled over 40% from its September peak, erasing more than $360 billion from its market capitalization. Nearly $67 billion of that decline occurred on Thursday alone, as Oracle’s second quarter results failed to assuage a key concern for investors — that the company is too heavily reliant on OpenAI (OPAI.PVT).
Oracle’s AI-fueled growth targets outlined in its first quarter sent the stock to a record on Sept. 10, briefly making its founder, Larry Ellison, the world's richest man. In September, the company told investors its remaining performance obligations (RPO) — or the value of its future revenue from customer contracts signed — had soared nearly 360% to $455 billion.
It was later revealed that ChatGPT developer OpenAI accounted for at least $300 billion of its customer commitments as part of the Stargate project. Since then, its stock has struggled.
Rising concerns about OpenAI’s mounting costs — set to hit $1.4 trillion due to its deal spree with firms including Nvidia (NVDA), CoreWeave (CRWV), AMD (AMD), and Broadcom (AVGO), in addition to Oracle — and increasing competition from Google's (GOOG) Gemini models have made investors even more wary.
"Clearly there's been a reversal in terms of the market's perception of OpenAI in the last couple of months," BNB Paribas analyst Stefan Slowinski told Yahoo Finance. “The OpenAI ecosystem obviously has been suffering as a result.”
Slowinski and other Wall Street analysts agree that OpenAI’s potential inability to pay for its wide-ranging AI infrastructure commitments is Oracle’s biggest risk.
Read more: How to protect your portfolio from an AI bubble
OpenAI CEO Sam Altman declared a “code red” last week as the upstart faces greater rivalry from Google, threatening its ability to monetize its AI products and meet its ambitious revenue targets.
"[Oracle is] in this tough 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," DA Davidson analyst Gil Luria said.
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