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Oracle’s $300 Billion AI Deal Raises Debt Concerns
Oracle Corporation (NYSE: ORCL) has announced a $300 billion cloud computing agreement with OpenAI, significantly increasing its backlog to $455 billion. However, investors are expressing concern over Oracle’s escalating debt required to finance the construction of AI data centers, particularly after a 23.1% share price drop in November.
Oracle recently sold $18 billion in debt and is in discussions to borrow an additional $38 billion in partnership with Vantage Data Centers, amidst concerns regarding OpenAI’s ability to repay its obligations. The risk is compounded as the cost of Oracle’s five-year credit default swaps has surged to the highest levels since 2008, signaling heightened investor anxiety over the company’s financial commitments.
OpenAI has also entered into significant contracts with other tech giants, including $38 billion with Amazon Web Services and $250 billion with Microsoft Azure, raising questions about its financial sustainability. Oracle’s dependency on OpenAI’s success places it in a precarious position, especially if the AI market experiences a downturn.
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