:max_bytes(150000):strip_icc()/GettyImages-2259048364-b5abdd312fe44ccaa23ef67859134027.jpg "Oracle Is Raising Billions to Fund Its AI Buildout. Today, Investors Are Cheering")
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Key Takeaways
- Oracle shares rose on Monday after the company said it planned to raise up to $50 billion through debt and equity sales this year to fund its AI data center buildout.
- Oracle is dramatically increasing its infrastructure spending to meet an AI-driven surge in demand for cloud computing and take on incumbents Microsoft, Alphabet, and Amazon.
Oracle plans to raise billions to fund its ambitious bets on AI and cloud computing. That has the stock rising today.
The company on Sunday night said it intends to raise between $45 billion and $50 billion this year through a combination of debt and equity financing. The proceeds are intended to expand Oracle’s cloud computing capacity “to meet the contracted demand” of its largest customers—companies including Nvidia, Meta, OpenAI, and TikTok.
Oracle (ORCL) shares, which fell premarket, jumped more than 3% when markets opened on Monday. The stock was recently up about 2%; tech stocks were mostly rising, led by the memory and semiconductor stocks that have defined the AI trade so far this year.
Why This Is Important
Oracle is borrowing billions to meet a surge in AI-driven demand for cloud computing. But the speculative tenor of Oracle’s cloud business has made its stock sensitive to the ebbs and flows of AI optimism on Wall Street.
Oracle is undertaking one of the most aggressive and risky AI infrastructure buildouts of the U.S. tech giants. Its backlog has more than quintupled in the past year to more than $500 billion, driven by multibillion-dollar cloud computing contracts that pit it against leading providers Microsoft (MSFT), Alphabet (GOOG), and Amazon (AMZN). Oracle plans to invest $50 billion in property and equipment in its 2026 fiscal year, less than its larger competitors but more than double last year’s total.
Unlike the cloud incumbents, who have funded their data center buildouts primarily with cash flows from legacy businesses, Oracle is borrowing to meet demand. The company sold $18 billion in bonds last September in one of the tech industry’s largest ever debt issuances.
Some investors are concerned about Oracle’s debt-fueled expansion. They see immense risk in the company borrowing tens of billions of dollars to buy chips and other data center equipment when only a few major customers account for the vast majority of its backlog. If the well runs dry at OpenAI, which signed a $300 billion cloud contract with Oracle last year but isn’t expected to turn a profit before the end of the decade, Oracle could be saddled with both massive debt and excess capacity.
Oracle executives insist the company’s borrowing will not jeopardize its investment-grade status, which could explain its decision to raise half of its $50 billion goal by selling equity rather than debt. Oracle’s bonds are currently rated BBB, the lowest tier of investment grade, by major agencies like S&P and Fitch. A lower rating would increase Oracle’s interest rate and force major institutional investors like pension funds, which are often barred from owning “junk” bonds, to sell its debt.
Oracle became an AI darling when it revealed last September that its cloud computing backlog ballooned to $450 billion. The stock had its best day in decades, rising 36% and briefly making founder Larry Ellison the world’s richest man. The euphoria, however, gave way to skepticism after reports revealed OpenAI accounted for nearly all of Oracle’s backlog growth.
Within two months, the stock had given up all of its gains. It continued to slide through the end of the year as the AI bubble fears that the Oracle-OpenAI deal helped stoke weighed on tech sentiment. Heading into this week, Oracle shares were down about 50% from last year’s highs.
