Oh Come On!
Investor, Venture Capital Background
Oracle's big rally on its RPO jump was fake, and the only data since show OpenAI writing checks its business can't cash. The pop came on an earnings miss and took 57 days to undo; the stock then fell another 46% and has dropped after every report since. Within two weeks, a force majeure dismissed as a nothing burger gave way to word that its cash-incinerating key customer has $20B less revenue than due diligence assumed. Shorting in size is still hard. x.com x.com x.comÂ
Oracle's reliance on OpenAI makes its backlog vulnerable. About $250B of backlog comes from OpenAI, which is not making money; that risk is no longer in Oracle's hands, and the stock is very likely to fall further. x.com x.comÂ
Oracle's OpenAI exposure makes buying its shares here a bet too big to take. x.com x.comÂ
Oracle looks mispriced because $11 of current consolidated earnings power puts it at 11x earnings without a breakup. It trades below its software business's value despite the highest gross retention in software; separating pre-AI OCI, AI operations and AI development makes it an obvious long. Future funding will cost more, but current leverage is no issue and all contracts are well below spot, leaving nowhere near neocloud risk. Fundamentals may not matter during panics. x.com x.com x.comÂ
OpenAI's funding strain makes Oracle's AI revenue less dependable because OpenAI pays its bills with money it must keep raising. Investors resisted Morgan Stanley's $1.4 trillion valuation pitch, forcing a cut to $1.25 trillion, and the next raise could come in below $30 billion; contracts funded by fundraising are worth less than contracts funded by cash flow. x.comÂ
Oracle's credit looks to be cracking, with its bondholders sweating bullets; the situation looks over. x.comÂ
Oracle's forecast of a FY29 capex step-down and a limit on additional capital raises supports a return to all-time highs soon. Oracle says it will limit those raises to $20 billion through FY30 and reaffirmed its FY27 outlook of over $90 billion in revenue and $8.10 non-GAAP EPS. The stock remains very overcrowded. x.com x.comÂ
Oracle looks set to burn many more billions in cash at least into the first half of fiscal 2028. That is the less reassuring implication of Reuters' headline that Oracle expects cash flow to turn positive in the second half of that fiscal year, even though the market liked the news. x.comÂ
Oracle faces double jeopardy, viewed both as a legacy software business and as an overlevered infrastructure business that depends on OpenAI being good for its capex commitments. OpenAI is already so aggressively valued that even catching Anthropic in private valuation leaves limited upside, which also limits how much SoftBank, which @goodalexander calls leveraged long OpenAI, could benefit. x.comÂ
Oracle's plan to fund its AI buildout from cash flow makes last week's financing fears look completely overdone. It expects capex to peak in FY27-28, free cash flow to turn positive in H2 FY28 and top $30B in FY29, funding growth from then. Oracle plans at most $20B in further capital raises through FY30, excluding refinancing, after an already completed $20B equity raise. Vendor financing, customer prepayments and customer-supplied hardware should reduce upfront cash needs. x.com x.comÂ
Oracle's stock is ignoring nervous credit desks, which is not a good sign. Per @CheddarFlow, Oracle's credit risk has skyrocketed, yet the shares still trade as if it isn't happening. x.comÂ
