Oracle’s cloud strategy an increasingly risky bet

The financing arrangement for Oracle’s massive data center plan aimed at feeding the AI monster could result in a $38 billion debt offering as soon as next week, and according to this week’s report from Morgan Stanley, that figure could skyrocket to $55 billion – $75 billion as a result of the “sheer size of data center capex needs.”

This adds another factor to CIOs’ vendor evaluation criteria, Sanchit Vir Gogia, chief analyst, founder, and CEO of Greyhound Research, said Wednesday, noting, “the recent surge in Oracle’s credit default swap pricing and the scale of its $38 billion AI data centre financing are not benign financial maneuvers, but direct signals of shifting execution risk that CIOs must now incorporate into supplier risk governance.”

These moves, said Vir Gogia, signify a “profound change in Oracle’s capital posture: away from retained earnings and free cash flow-funded growth, toward debt- and bank-led structures more akin to telecom-scale infrastructure projects. While project financing is not inherently negative, its use at this magnitude, combined with triple-digit billion-dollar AI infrastructure commitments, forces enterprise buyers to confront new forms of operational dependency and duration risk.”

AI-led stumble would be problematic

Vir Gogia pointed out that what makes this development “materially relevant to CIOs is not the cost of debt itself, but what the debt structure implies about the durability and elasticity of Oracle’s supply commitments. When a core enterprise supplier begins financing multi-region capacity through syndicated debt vehicles tied to counterparties like OpenAI, buyers must ask: What happens to our service quality and roadmap continuity if one of these anchor tenants stalls or fails to consume as planned?”

Enterprise CIOs, he said, must not treat Oracle’s AI capacity plan as isolated from its software future. “An AI-led stumble in Oracle’s cloud business, whether triggered by customer default, infrastructure delays, or a broader recalibration of demand, would not render Oracle’s core database and ERP franchises structurally unsound,” he pointed out. However, “it would force a recalibration of Oracle’s capital allocation, engineering velocity, and pricing posture across those core domains. The risk is not collapse. The risk is constrained optionality and margin-driven product posture for enterprise software buyers who depend on Oracle for compliance workloads, regulatory alignment, and mission-critical operational resilience.”

In a research note released last month, he wrote, “[when] Oracle announced a reported $300 billion, five-year compute contract with OpenAI, markets responded with their usual mix of exuberance and hysteria. The company’s shares surged nearly 40% in a single day — its sharpest rise since 1992. Larry Ellison briefly overtook Elon Musk as the world’s richest man. The optics were immaculate and the choreography flawless, a champagne moment for investors.”

However, he pointed out, “theatre is not delivery. What Oracle served was less a coronation than a carefully staged performance: a heady cocktail of ambition, backlog, and speculation. At Greyhound Research, we argue that such moments call not for applause but for scrutiny. The right instinct is not to toast, but to check the bill.”

Oracle ‘betting the farm’ on AI

Rob Tiffany, research director in IDC’s worldwide infrastructure research organization, had a different view, saying, “in an effort to catch up with the other hyperscaler clouds, Oracle has been aggressively building out its Oracle Cloud Infrastructure (OCI) data center regions all over the world prior to their Stargate endeavor with Crusoe, OpenAI, and SoftBank, to capitalize on the AI opportunity.”

Speculation about the burst of the AI bubble aside, he said, “the strength and success of the OCI buildout thus far rests with Oracle’s dominant database and Fusion Cloud ERP, and those enterprise customers should be confident  in Oracle’s future.”

Scott Bickley, advisory fellow at Info-Tech Research Group, added, “[while it is] extraordinary to see them take on this kind of debt, [Oracle] are really betting the farm on the AI revolution panning out. There are a lot of risks involved if momentum in the AI space loses its current trajectory. There could be a lot of stranded infrastructure and capital.”

The ultimate risk, he said “lies in the viability of OpenAI. These guys have said they’re going to spend $1.4 trillion on AI capacity build out, and they’re sitting on a revenue base of $13 billion a year right now. If they go up in smoke, then that could leave a lot of this investment stranded. That would be the worst case kind of Black Swan scenario.”

At this point, he said, “CIOs would not want that bubble to burst because that is a key part of their strategy moving forward. Maybe they are not even contemplating at this point that doomsday scenario.”

Most, said Bickley, are “caught up in the AI vortex. Their CEOs, their boards are telling them to go all in on AI right now.”

However, industry analyst Carl Olofson, the founder of DBMGuru, isn’t worried. He said that Oracle’s flagship product, Oracle AI Database “is aimed at large customers making strategic investments for the long term, so I would not be too concerned about bumps in the road that may occur in the short to medium term.”

He added, “of course — and this is a position and not a prediction — there is always a chance that somehow it will get screwed up, although I think a major shock affecting this product is unlikely. Oracle’s approach is not dependent on some of the more extreme expectations that people have of AI coming true. Just normal, practical stuff.”