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Oracle CEO Clay Magouyrk speaks during a question-and-answer session following a tour of the OpenAI data center in Abilene, Texas, September 23, 2025.
Shelby Tauber | Swimming pool | Reuters
three months ago Oracle named Clay Magouyrk and Mike Sicilia as his new CEOs. They have a difficult start.
Oracle shares are down 30% so far this quarter. With four trading days remaining in the period, the stock is poised for its biggest decline since 2001 and the collapse of the Internet companies.
Investors have become skeptical about the database software maker’s ability to open more server farms for operator ChatGPT. OpenAIwhich agreed in September to spend more than $300 billion with Oracle.
Earlier this month, Oracle reported weaker than expected results. quarterly turnover and free cash flow. On the earnings call, new CFO Doug Kehring called for $50 billion in capital spending for fiscal 2026, 43% more than the September plan and double the previous year’s total. Additionally, Oracle forecasts $248 billion in leases to increase cloud capacity, in addition to building data centers.
Such growth will require considerable debt. In September, Oracle raised 18 billion dollars in a jumbo bond sale, one of the largest debt issuances ever in the technology industry. Kehring pledged during the earnings call to maintain Oracle’s debt rating as investment grade. But some skeptical investors are betting otherwise, driving up the prices of Oracle’s software. credit default swaps.
“Given that Oracle is already barely clinging to an investment grade rating, we would be concerned about Oracle’s ability to meet these obligations without restructuring its OpenAI contract,” DA Davidson analysts wrote in a Dec. 12 note to clients. They have the equivalent of a holding rating on the title.
Oracle declined to comment.
Magouyrk and Sicilia’s tenure began at a time of historic optimism.
About two weeks before taking the reins of Safra Catz, Oracle reported a revenue backlog of 359% strongly linked to OpenAI’s commitment. The deal that represented a major support for Oracle, which was left aside The Gartner list of the top five cloud infrastructure providers by revenue for 2024.
Following news of the OpenAI deal on September 10, Oracle shares soared nearly 36%, the third-largest rise since the company’s IPO in 1986. Shares hit an intraday record of $345.72.
“We think $340 was terrifying,” Zachary Lountzis, vice president of Lountzis Asset Management, said in an interview. Lountzis held $25 million in Oracle stock as of September 30, according to a deposit.
The stock has since lost 43% of its value, closing Wednesday at $197.49, although it earned a bump Last Friday, TikTok announced that it had agreed to sell part of its U.S. operations to Oracle and other investors. Oracle has been providing cloud services to TikTok for years.
Don’t “bet against Larry”
Lountzis said his team first bought Oracle stock in 2020, when the stock was below $60. It has maintained its stake despite recent ups and downs, buying back about 30,000 additional shares in the first quarter of this year.
“Our philosophy is that we are OK with short-term overvaluation if the economics of the company have not changed, and that has been the case with Oracle,” Lountzis said. “We didn’t feel like the economics of the company had changed with all the largely positive news that came out. And I think what we saw from $340 to $180 is actually a very healthy correction.”
For Lountzis, much of his confidence in the company is based on Larry Ellisonwho founded Oracle in 1977 and is now the second richest person in the world, according to Bloomberg.
“You would have gone broke 40 times betting against Larry in the last 50 years,” Lountzis said. “He sees the future.”
In October, Sicilia, Magouyrk and Kehring presented their vision of a much faster growing Oracle, with revenue expected to reach 225 billion dollars in fiscal 2030, up from $57 billion in fiscal 2025. Most of this growth will come from artificial intelligence infrastructure, with from Nvidia graphics processing units at the center of it.
But while Magouryk told analysts to prepare for “hypergrowth,” such expansion would come at the expense of profitability, because Oracle’s core business, software, generates much higher margins.
In fiscal 2021, Oracle’s gross margin was 77%. Analysts surveyed by FactSet forecast it will fall to around 49% in 2030, with total negative free cash flow of around $34 billion over the next five years before that number turns positive in 2029.
Eric Lynch, managing director of Suncoast Equity Management in Florida, said it’s difficult as an investor to feel comfortable with Oracle’s plans.
“Four or five years is a long time,” Lynch said. “It’s just not part of our investment discipline.”
Lynch also said he was concerned about such a reliance on OpenAI, which is burning through cash at a rapid pace and has committed to spending more than $1.4 trillion in total on AI development and investments.
“Will the demand be there from OpenAI?” » said Lynch.
Wells Fargo analyst Michael Turrin initiated coverage of Oracle earlier this month with the equivalent of a buy rating and a price target of $280. He said industry perception would likely improve if Oracle continued with OpenAI, which could account for more than a third of the company’s revenue by 2029, according to Turrin’s estimate.
“They’re kind of moving away from being a more value-oriented business to being more of a growth-oriented business,” Turrin said.
A big challenge for Oracle remains gaining market share in cloud infrastructure, where the company lags far behind. Amazon, Microsoft and Google even though its client list includes names like Meta, Uber And That of Elon Musk xAI.
Databricks, which was just valued at $134 billion in a funding round, is not making its popular data processing software available on Oracle’s cloud.
That will happen “when customers start knocking on my door saying, ‘You have to use Oracle,'” Ali Ghodsi, CEO of Databricks, said in an interview. “Maybe it’s happening, but we just haven’t heard about it.”
Rival of Databricks Snowflake also did not provide its services to Oracle.
Turrin said Oracle’s credibility in the market will depend on the success of AI development.
“Then customers start looking at that and saying, wow, this company was trusted to build some of the greatest training hubs in the world, and they respect them,” Turrin said. “We should also take a look and understand what is going on here.”
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