Oracle It reported third-quarter earnings on Tuesday, and it was an unofficial test for the artificial intelligence business.
After announcing a $50 billion financing plan in early February, which included debt and equity, investors are eager to understand the pace of dilution to current shareholders.
“Cadence matters,” Gil Luria, an equity analyst at DA Davidson, told CNBC.
Of all the hyperscalers favoring AI cloud computing, Oracle is the most reliant on financing moves to fund its ambitious data center buildout plans. According to Credit Investors who spoke to CNBC, its latest debt collection includes a $5 billion convertible preferred offering and approximately $25 billion in senior notes at various maturities. A deal is oversubscribed, indicating strong demand.
Oracle’s ability to deliver data center assets to OpenAI, its main customer, is of utmost importance to investors.
Late Friday, Bloomberg reported that negotiations to extend the contract with OpenAI in Abilene, Texas, had failed. Oracle’s deal to deliver eight sites to OpenAI is on track and on schedule, a source familiar with the situation told CNBC. The source asked not to be named to discuss a confidential matter.
OpenAI executive Sachin Kutty later posted on X that while it is considering expanding its presence in Abilene, it will also look at other markets across the US.
“We considered expanding it further, but ultimately decided to put that extra capacity elsewhere,” Cutty wrote. “Today we have more than half a dozen sites developed in multiple states, including the site we are building with Oracle in Wisconsin, where the first steel beams went up just this week.”
Cutty is responsible for leading OpenAI’s compute infrastructure and has previously held the roles of Head of AI and Chief Technology Officer. Intel.
The market is hypersensitive to any developments related to Oracle’s $300 billion deal with OpenAI.
News of the deal initially sent Oracle’s stock up 35% last September, its biggest intraday gain since 1992. The deal strengthened Oracle’s position as a major competitor in the AI cloud computing space and set it aside. Amazon, Google And Microsoft.
However, in late fall, Oracle surprised the market by raising a significant amount of debt, fueling investor fears that its AI build could be expensive and put pressure on its balance sheet. Oracle’s 5-year credit default swaps were extended as bond investors cast doubt on the enterprise software company’s ability to hold onto its investment-grade credit rating, currently two notches above junk. Credit default swaps are like insurance for investors, with the buyer paying for protection in the event that the borrower is unable to repay its loan. Bond investors told CNBC that AI is a popular way to hedge the risk associated with trading.
Wall Street is looking for a clearer reading on the return on investment of Oracle’s AI bet when the company reports earnings on Tuesday, as well as any future capital raising.
Analysts have speculated that the company may undergo consolidation measures to streamline costs.
TD Cowen wrote in a Jan. 26 note to clients, “Our channel reviews indicate that Oracle is evaluating multiple avenues ahead to address financial questions, including 1) a RIF (workforce reduction) of 20-30K employees, which could increase incremental free cash flow by ~$8-10B.”
Analysts added that divestitures and securing seller financing deals could also be on the cards.
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