Oracle Stock Was Caught In the AI Debt Selloff. Wall Street Says That’s a Mistake.

Oracle has faced mounting concerns about funding its artificial-intelligence buildout. (ANDREW CABALLERO-REYNOLDS / AFP via Getty Images)

Key Points

• Analysts at Cantor Fitzgerald say Oracle stock has been falling as investors worry about its financing.
• Cantor analysts estimates Oracle needs $76 billion in additional financing through fiscal 2029 to fund its AI buildout.
• Evercore analysts argue Oracle is being unfairly caught up in the AI debt selloff.

Oracle’s massive artificial-intelligence ambitions have become a liability for its stock as concerns mount about the billions of dollars needed to finance its expansion. Some analysts believe those fears may have been overblown.

Cantor Fitzgerald analysts said in a research note that Oracle will need about $76 billion in additional financing through fiscal 2029 to fund its AI buildout. Raising that money could become more expensive as yields on Oracle’s bonds have climbed roughly 3 percentage points above their original interest rates.

The cost of insuring Oracle’s debt also has surged, with some five-year credit-default-swap quotes approaching 300 basis points, analysts noted. That means investors would pay roughly $300,000 annually over five years to insure $10 million of Oracle’s debt against default.

Oracle’s heavy reliance on OpenAI has added to the uncertainty. Cantor analysts estimated the ChatGPT maker accounts for roughly half of Oracle’s remaining performance obligations. That concentration has raised concerns about whether OpenAI can generate enough revenue to meet its financial commitments.

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Still, Cantor believes Oracle has time to get its finances in order.

The company’s more substantial debt repayments won’t begin until 2032, giving it several years to generate cash. Oracle also could reduce its borrowing needs by relying more heavily on upfront payments from customers and arrangements in which customers supply their own AI hardware, the analysts argued.

Oracle fell 2.9% in premarket trading after ending Wednesday’s session down 1.5% to $129.13.

Oracle shares have plunged 53% plunge over the past 12 months, including a 12% decline over the last month, even as demand for the company’s services remains strong and its backlog of contracted revenue continues to grow, the analysts said.

Even under a scenario involving higher borrowing costs, Cantor estimates Oracle shares could climb about 45%.

Cantor maintained an Overweight rating on Oracle and $284 price target, implying 120% upside from Wednesday’s closing price.

The financing concerns reflect broader unease about AI-related debt that has rattled investors in recent weeks. Those worries have weighed on CoreWeave , whose bond selloff this month triggered a sharp drop in shares.

But Evercore ISI analysts argue Oracle is being unfairly caught up in the selloff. Unlike CoreWeave and other so-called neocloud companies, such as Nebius , Oracle has an established software business that provides another source of revenue.

“Let’s be clear, Oracle isn’t a neocloud but it trades like one,” Evercore analysts wrote in a note last week.

The analysts estimate Oracle’s core software business alone is worth about $100 a share, suggesting investors are assigning relatively little value to its growing cloud infrastructure operations.

Oracle’s analyst day next week could provide an opportunity to cool concerns. Evercore analysts said investors will be looking for greater clarity on how Oracle plans to fund its AI expansion, along with reassurances about the profitability of its OpenAI contract.

Write to Ty Roush at tyler.roush@barrons.com

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