Here’s Why Oracle Is Not the Next Nvidia

• StockStory Top Pick NVDA -1.81%
• ORCL -1.47%

Quick Read

• Oracle (ORCL) issued $18B in bonds and secured a $38B loan to fund AI expansion. Interest payments now consume roughly 20% of quarterly net income.

• Oracle shares dropped 42% from their September high of $386 to $200 amid rising debt concerns and slower cloud revenue growth.

• AI capex will consume 94% of Oracle operating cash flow minus dividends and buybacks in 2025 and 2026.

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Oracle (NYSE:ORCL) stock ignited investor enthusiasm starting in late April, fueled by Wall Street upgrades and optimism around its AI pivot. Momentum exploded with the June announcement of the massive Stargate project -- a $500 billion joint venture with OpenAI and others to build AI data centers. Analysts piled in, projecting explosive cloud growth.

The shares surged 85% from April lows, hitting an all-time high around $346 per share on Sept. 10 amid hype for AI infrastructure dominance. But the rally has fizzled fast. Since then, Oracle has shed 42% -- now trading at $200 -- lagging its peers and the broader market.

Even as Oracle deepens its AI immersion with hyperscale cloud offerings, it's missing the relentless tailwinds lifting others making big AI bets. Hype around AI chips and compute demand has propelled  Nvidia (NASDAQ:NVDA) up 32% year-to-date, while Oracle continues to grapple with skepticism. There are clear reasons why Oracle won't become the next Nvidia.

The AI Bill Will Come Due

Oracle's aggressive AI bet has supercharged its balance sheet risks, turning early excitement into investor jitters. To fund Stargate and take on Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), Oracle issued $18 billion in bonds and secured a $38 billion loan, ballooning total debt to nearly $104 billion. That's up sharply from $90 billion a year ago, with interest payments now eating into roughly 20% of its $3 billion quarterly net income -- nearly double its 10% pre-AI surge.

Bank of America recently flagged this as part of a broader AI "cash crunch," where tech firms' borrowing hit $75 billion in the September-to-October alone, twice the annual average over the past decade.

For Oracle, AI capex is set to consume 94% of operating cash flow minus dividends and buybacks in 2025 and 2026, versus 76% last year. If AI adoption stutters, these fixed costs could crush margins, already thin at 20% for cloud operations.

This debt pile echoes sector-wide strains. Amazon's planned $100 billion+ capex for 2025 -- mostly AI data centers -- has already flipped free cash flow negative in spots, down 66% to $18.2 billion in the second quarter. Oracle faces a similar squeeze: it is front-loading billions on unbuilt facilities for customers that may not materialize soon. FCF went from $11.2 billion last year to a usage of $5.9 billion in its fiscal 2026 Q1.

Earnings also disappointed, despite cloud revenue jumping 28% to $7.2 billion, as Oracle missed estimates amid slower enterprise deals. Investors fear overcapacity with global data center spend potentially hitting $3 trillion by 2028, but much of it is debt-fueled. Meta Platforms (NASDAQ:META) raised $30 billion in October to finance its aggressive AI expansion.

KeyBanc analysts predict Oracle will have to borrow $100 billion over the next four years to deliver its OpenAI contracts. amplifying leverage risks at valuations still 25 times forward earnings.

Concentration Risks in a One-Horse AI Race

Beyond debt, Oracle's AI strategy feels perilously narrow, hinging on a few big swings rather than broad ecosystem plays. Stargate cements a deep tie to OpenAI, with the global AI cloud market projected to reach $350 billion by 2030, and Microsoft aiming for a 35% share. But OpenAI's own finances raise red flags: chronic losses topping $5 billion annually, propped by Microsoft subsidies and volatile venture capital cash.

This embeds an "OpenAI premium" in Oracle stock -- traders betting on one partnership's success amid the diversified wins of rivals. Nvidia, for example, supplies chips to everyone from hyperscalers to autos, spreading risk across industries.

Oracle's execution lags, too. While it touts $144 billion in cloud revenue by 2030, deployment speed trails leaders. Amazon and Microsoft already host 70% of AI workloads; Oracle's 5% share means playing catch-up with pricier, less proven infrastructure.

Recent quarters also show enterprise hesitation -- firms wary of vendor lock-in or AI ROI timelines stretching into years. Add macroeconomic headwinds, like Federal Reserve timidity on interest rate cuts, could spike Oracle's $4 billion annual interest tab, while a softening economy crimps IT budgets.

Key Takeaway

These cracks explain the 42% stock plunge: what Wall Street once hailed as "Nvidia for data" now looks like a leveraged bet on unproven demand. Oracle's AI immersion is real -- Q3 bookings hit $2.4 billion -- but without Nvidia's moat or cash hoard, it's vulnerable to any whiff of bubble trouble.

There is upside potential: if demand endures and Oracle deploys capacity quicker than Amazon, Microsoft, or Alphabet, cloud dominance could drive 50%+ growth. But balance-sheet strains and concentration on a handful of executions make the downside steeper. It's high-stakes poker, not the sure-thing surge Nvidia rode.

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