"Don't tell me what you think. Show me your portfolio." — Nassim Taleb
Oracle drops its third-quarter earnings this Tuesday, and damn, this report is going to be way more than just an earnings release. It's going to be a reality check for the entire artificial intelligence narrative that Wall Street bought hook, line, and sinker over the past two years.
Betting big with someone else's bullets
Let's cut straight to it: of all the hyperscalers elbowing their way into the AI race — Amazon, Google, Microsoft — Oracle is the one most dependent on other people's money to bankroll the party.
In early February, the company announced a $50 billion financing plan, including debt and equity. Within that package were $5 billion in convertible preferred shares and roughly $25 billion in senior notes with varying maturities. The offering was oversubscribed — meaning the market ate it up.
But here's where the poison lives.
Gil Luria, analyst at DA Davidson, nailed it: "The cadence matters." In plain English: raising the cash isn't the hard part. The problem is the pace at which existing shareholders get diluted. If you own Oracle stock today, every new financing round is like splitting the pizza with more people. Same pizza, smaller slices.
The OpenAI marriage: honeymoon or fairy tale?
The beating heart of this whole thesis is the monster $300 billion deal with OpenAI, announced last September. When the news broke, Oracle's stock shot up 35% in a single day — its biggest intraday jump since 1992.
Pretty sweet, right? Now flip the coin.
Last Friday, Bloomberg reported that negotiations to expand the OpenAI deal in Abilene, Texas, fell apart. A source told CNBC that the original eight-site agreement is still standing and on schedule. Sachin Katti, OpenAI's executive in charge of compute infrastructure, posted on X that they decided to put the additional capacity in other locations.
Read between the lines: OpenAI didn't put all its eggs in Oracle's basket. And the market has become hypersensitive to any whisper about this contract.
It's like that scene in Breaking Bad where Walter White thinks he's running the show, but every new partner is just another existential threat.
The debt is tomorrow's problem, the data centers are yesterday's news
Here's the part the financial circus would rather leave out of the fancy PowerPoints.
Oracle's 5-year credit default swaps (CDSs) have widened. For the non-finance crowd: CDSs are basically insurance that bond investors buy in case a company can't pay its debts. When that "insurance" gets more expensive, it's a sign that the credit market — which historically is a hell of a lot smarter than the stock market — is getting nervous.
Oracle currently holds an investment-grade rating, but only two notches above junk. Two notches. In a high-interest-rate environment with colossal infrastructure spending.
Bond investors told CNBC that CDSs have become the go-to tool for hedging against AI trade risk. Translation: the people who actually lend money are protecting themselves. That should set off a yellow light in the head of anyone who's only watching the stock price go up.
Cutting flesh to make the numbers work
TD Cowen dropped a bomb in a client note: their channel checks indicate Oracle is evaluating laying off between 20,000 and 30,000 employees, which would generate roughly $8 to $10 billion in additional free cash flow. On top of that, divestitures and supplier financing agreements are reportedly on the table.
When a company needs to fire tens of thousands of people to make the math on its "visionary bet" work, somebody needs to ask: is this bet for the shareholders or for the C-suite's ego?
Warren Buffett used to say: "Only when the tide goes out do you discover who's been swimming naked."
Tuesday's earnings will show whether Oracle is wearing trunks — or whether the market is about to see something it'd rather not.
Do you have the guts to hold this stock while the company piles on debt at the speed of light?
