- - How Oracle became a ‘poster child’ for AI bubble fears

Laura BrattonDecember 21, 2025 at 11:00 PM

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Oracle (ORCL) stock’s boom and bust in 2025 has become emblematic of the tech trade’s central conflict: Investors can’t decide whether AI is a generational opportunity or a looming risk.

Oracle started the year on a high note by announcing a joint venture with ChatGPT developer OpenAI (OPAI.PVT) and SoftBank called Stargate, in which the companies committed to investing $500 billion in US AI infrastructure. President Trump announced the news in the Oval Office in January, flanked by the respective companies’ leaders, including Oracle chair Larry Ellison — a move that sent the stock soaring.

AI optimism continued to push Oracle shares higher following its quarterly earnings reports in June and September, with AI-driven deals set to push cloud segment revenue to $166 billion in 2030. The stock’s surge in September briefly made Ellison the world’s wealthiest person.

But AI euphoria quickly gave way to doubt. Investors became increasingly concerned over the rising use of debt to fund tech firms’ AI spending, just as the payoff of that spending remains hotly debated. Those concerns are evidenced in the budding demand for Big Tech credit default swaps (CDS) — financial contracts that act as insurance by letting investors bet on the likelihood that a company will default on its debt.

Read more: How to protect your portfolio from an AI bubble

Shares in Oracle have dropped more than 40% from their September peak but are up 16% for the year.

“As these firms such as Oracle have issued more debt, they've become more leveraged, which from a credit perspective means they're riskier,” S&P Global Market Intelligence analyst Gavan Nolan said, noting that CDSs have begun trading for the first time for even the "Magnificent Seven" tech firms with the highest credit ratings, like Microsoft (MSFT) and Alphabet (GOOG, GOOGL), in recent weeks.

Oracle has been at the center of the debt fears. The company issued nearly $26 billion in bonds this year, per Bloomberg data. Its CDS spreads have widened significantly, with the cost of insuring the company’s debt against default for five years hitting its highest since 2009 this month.

“ Oracle has become the poster child for fears of an AI bubble,” Oracle investor and tech analyst Cory Johnson told Yahoo Finance.

Oracle declined to comment for this story.

In its latest earnings results, the tech firm’s total debt rose 40% from the previous year to $124 billion, just as its cash outflow climbed from $2.7 billion to $10 billion. Analysts noted that after Oracle’s results, the company quietly disclosed in an SEC filing that it has $248 billion in additional lease commitments set to begin between the third quarter of its 2026 fiscal year and 2028 — mostly for data centers — not reflected in its balance sheet.

Morningstar analyst Luke Yang told Yahoo Finance that the dynamic means Oracle has “very little room for error” to execute its strategy.

Oracle stock’s boom and bust in 2025 has become emblematic of the tech trade’s central conflict: investors can’t decide whether AI is a generational opportunity or a looming risk. REUTERS/Dado Ruvic/Illustration/File Photo (Reuters / Reuters)

“Oracle's free cash flow is more constrained compared to other hyperscalers,” he said. Hyperscalers refer to Big Tech firms like Microsoft and Alphabet that operate massive data centers for their cloud businesses. “On the debt front — or other financing methods — there are only so much resources you can tap into.”

Soon enough, he said, Oracle will have to generate cash from its data centers — but how soon and how well it can do that is unclear, partly because firms set to rent computing capacity from Oracle are still figuring out how to monetize AI.

Complicating matters for Oracle is its deal with OpenAI — a pain point for the stock. The ChatGPT developer accounts for the majority — at least $300 billion — of Oracle’s remaining performance obligations, a measure of future revenue from customer contracts — a detail that, once revealed, sent Oracle shares tumbling from their September peak as Wall Street questioned whether OpenAI can meet its ambitious revenue targets amid mounting competition from Google.

OpenAI’s costs are also set to hit $1.4 trillion over the next eight years due to AI infrastructure deals with firms including Nvidia (NVDA), CoreWeave (CRWV), AMD (AMD), and Broadcom (AVGO), in addition to Oracle. The commitments have made investors particularly wary.

Investors have also been skeptical that AI demand will be as high as tech firms project.

“There's a lot of concern whether or not [demand] comes through in the same way or in the same size that's commensurate with what Oracle actually has to invest in now to generate a meaningful return on it,” Hedgeye Risk Management analyst Andrew Freedman said.

Oracle has said it could quickly repurpose its AI infrastructure for other customers if a client can’t pay its bills.

There is also concern that Oracle’s data center projects could face delays, potentially adding to the time horizon by which the company sees an AI payoff. Bloomberg reported that Oracle pushed back completion dates for data centers tied to its contracts with OpenAI to 2028 from 2027, but the company denied any delays. And a report from the Financial Times this month said that Oracle's biggest partner on data centers, Blue Owl (OWL), would not back its massive Michigan facility. Oracle said that a different equity partner other than Blue Owl was selected to finance the project.

The wave of investor skepticism has hit the company just as it's undergoing a CEO shake-up — co-CEOs Clay Magouyrk and Mike Sicilia in late September replaced longtime chief executive Safra Catz, who transitioned to Oracle's board of directors.

Oracle investor Johnson, like many who still remain bullish on the company's stock, believes in its management: “ Oracle has historically delivered on their promises,” he said. “ Every year and every decade, Oracle ends up ahead, and their competitors fall behind.”

Laura Bratton is a reporter for Yahoo Finance. Follow her on Bluesky @laurabratton.bsky.social. Email her at [email protected].

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