Oracle Corporation

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Somewhat Bearish -35

OpenAI Revenue Report Stings AI Stocks. Why Oracle Stock Is Falling Sharply. - Investor's Business Daily

📉 Oracle (ORCL) stock dropped over 3% to $166.42 after a Wall Street Journal report revealed OpenAI missed revenue and user growth targets.

🤖 OpenAI's CFO Sarah Friar reportedly expressed concern that the company might not be able to afford future computing contracts without faster revenue growth.

🤝 Oracle has a significant financial exposure to OpenAI, holding a reported $300 billion in cloud-computing contracts from the startup.

⚖️ These contracts with OpenAI account for a major portion of Oracle's $553 billion in total remaining performance obligations.

💸 Oracle is aggressively taking on debt and increasing capital expenditures to meet cloud demand driven largely by AI partners like OpenAI.

📊 Despite concerns, Evercore ISI analyst Kirk Materne stated that investors already price in skepticism regarding OpenAI's impact on Oracle's long-term earnings.

🔄 Materne noted the recent stock drop is more likely a reaction to sell the recent mini-rally rather than a fundamental shift in Oracle's business prospects.

📈 Nvidia (NVDA), Broadcom (AVGO), and Micron Technology (MU) also saw their shares decline as AI-related stocks faced selling pressure.

🛡️ OpenAI issued a statement downplaying the report, claiming its business is firing on all cylinders and that internal morale remains positive.

⚠️ The report highlights Oracle's strategic pivot depends heavily on OpenAI not retreating from its spending commitments to expand capacity.

Bullish Signals
  • Oracle stock held above its 50-day exponential moving average during the Tuesday decline, indicating technical strength despite short-term volatility.
  • Analyst Kirk Materne from Evercore ISI rates Oracle stock as 'outperform,' signaling confidence in the company's long-term prospects.
  • Materne suggests that recent skepticism regarding OpenAI is already priced into Oracle's multiple, implying upside potential remains available at current levels.
  • The report was viewed by analyst Kirk Materne as a potential selling opportunity ('excuse to sell') rather than a fundamental deterioration in the business.
  • Oracle's cloud-computing deal with OpenAI represents a major portion of its $553 billion in remaining performance obligations, providing significant long-term revenue visibility.
  • Oracle is aggressively investing by taking on debt and sharply growing capital expenditures to capture AI cloud-computing demand, demonstrating strong growth commitment.
Risk Factors
  • Oracle stock fell more than 3% to $166.42 in afternoon trading following a Wall Street Journal report that OpenAI missed its own revenue and new user targets.
  • OpenAI's potential inability to pay for future computing contracts, as warned by CFO Sarah Friar, directly threatens Oracle's strategic bet on growing its cloud infrastructure business.
  • Oracle relies heavily on a reported $300 billion computing contract with OpenAI, which constitutes a significant portion of its $553 billion in remaining performance obligations.
  • The company is taking on debt and sharply increasing capital expenditures to serve cloud demand, a strategy that depends entirely on OpenAI's continued growth and financial health.
  • Evercore ISI analyst Kirk Materne noted that OpenAI has pivoted toward the enterprise market after losing share to competitor Anthropic, raising questions about the stability of its commitments.
  • Oracle shares are down approximately 11% year to date entering Tuesday, marking a reversal of an 18% rally in April driven by AI optimism.
  • Analyst skepticism regarding the ultimate impact of OpenAI on Oracle's long-term earnings per share (EPS) is already priced into the stock's current multiple.
Full Analysis
Oracle stock slid more than 3% to $166.42 in afternoon trading Tuesday, driven by a Wall Street Journal report indicating that OpenAI has missed its revenue and new user targets. The report cited unnamed sources stating that OpenAI's Chief Financial Officer, Sarah Friar, warned company leaders of concerns regarding the ability to fund future computing contracts without sufficient revenue growth. This news stings Oracle specifically because OpenAI is a critical customer in Oracle's strategy to expand its cloud infrastructure business, with the two companies reportedly holding a massive $300 billion deal that constitutes a major portion of Oracle's remaining performance obligations. While OpenAI issued a statement defending its operations by claiming its business is "firing on all cylinders" and noting an "incredibly positive" internal mood, the report nonetheless prompted a broader sell-off in AI-related equities. Alongside Oracle, shares of Nvidia (NVDA), Broadcom (AVGO), and Micron Technology (MU) also moved lower. The concern stems from Oracle's aggressive expansion; the company is taking on debt and sharply increasing capital expenditures to meet cloud-computing demand, a strategy that heavily relies on continued growth from partners like OpenAI. Despite the decline, Oracle shares remained above their 50-day exponential moving average, suggesting the drop may be more of a correction of recent momentum rather than a fundamental shift in value. Evercore ISI analyst Kirk Materne noted that the report underscores known factors, such as OpenAI's pivot toward the enterprise market after losing share to Anthropic. Materne argued that significant skepticism regarding OpenAI's impact on Oracle's long-term earnings is already priced into the stock multiple and described Tuesday's slide as more of an "excuse to sell" following an 18% rally in April rather than a major deterioration of fundamentals. Even as shares are down about 11% year-to-date, the episode highlights the interconnected risks within the AI infrastructure sector as companies like Bloom Energy also provide updates on fuel-cell energy demand for expanding data centers.