Oracle Goes Too Far

Reports that Blue Owl Capital withdrew support for a $10 billion, 1-gigawatt data center in Michigan designed primarily for OpenAI has again flattened Oracle’s (ORCL) stock.

Oracle was the darling of the AI data center rollercoaster only until recently.

They have ended the year with quite a thud as they have gone to extremes by taking on over $100 billion in new debt. 

That’s the thing with AI – when is this new revolutionary technology going to become profitable?

Oracle’s debt binge has now pushed back any sort of fantasy that it could become profitable.

Pretty soon, the word “overspend” is going to be used a lot in regard to the capital investments made in AI.

Many companies, especially the small ones, will pull back from the AI bonanza.

These factors are eroding investor confidence, derailing the stock’s momentum despite earlier AI-fueled gains.

Oracle’s debt has surged dramatically as it races to build AI-capable data centers to compete with hyperscalers like AWS, Microsoft Azure, and Google Cloud.

As of its fiscal Q2 2026 (reported in December 2025), total debt stood at approximately $108 billion, up from $92.6 billion earlier in the year.

This increase stems directly from massive capex outlays, which the company escalated to around $50 billion for the fiscal year—far exceeding prior guidance.

Oracle’s heavy borrowing—much of it to finance facilities often owned by partners and leased back—exposes it to interest rate sensitivity and credit rating risks.

If growth falters, downgrades could trigger higher borrowing costs, creating a vicious cycle. Second, the Blue Owl pullout highlights financing fragility.

Blue Owl has been Oracle’s primary backer for major U.S. data centers, typically owning the assets and leasing them to Oracle in a model that offloads some capex.

The stalled negotiations for the Michigan project—intended to supply AI compute for OpenAI—signal that even reliable partners are wary, possibly due to concerns over project delays, Oracle’s credit profile, or uncertain returns on AI infrastructure.

Without a replacement backer, Oracle may need to self-fund or borrow more, accelerating debt accumulation.

Compounding this is the threat from Oracle’s effectively loss-making AI and cloud infrastructure push.

While Oracle remains overall profitable—reporting a 95% year-over-year net profit surge in Q2 on strong revenue growth—the Oracle Cloud Infrastructure (OCI) segment operates in a high-burn phase typical of scaling cloud providers.

Cloud revenue grew robustly (infrastructure sales jumped significantly), but it fell short of lofty expectations, sparking concerns over delayed profitability.

This backlog is promising but deferred; much of the revenue recognition is years out, while costs are immediate.

The “loss-making” dynamic is particularly acute in AI workloads. Oracle is betting hundreds of billions on data centers to capture AI demand, yet returns are uncertain.

Competitors with deeper pockets are dominating, and customers like OpenAI—accounting for a substantial portion of Oracle’s cloud backlog—are themselves unprofitable and reliant on funding rounds.

If AI hype cools or adoption slows, Oracle could be left with stranded assets and unsustainable debt service.

Avoid investing in Oracle stock short-term due to mounting downside risks. Ballooning debt of $108B and escalating amid partner pullouts is a serious red flag. 

Cut the leash on this one – the risk is too high when you can wake up any day, and the stock is hammered by 10%.