Oracle outlines all the ways it could lose the farm it bet on AI

Oracle is burning hundreds of billions to finance AI datacenters for the likes of OpenAI. Now, the company is admitting they may not pay off. Amid the usual boilerplate, Big Red cited numerous risk factors related to its AI infrastructure investments in a regulatory filing published late last month. To grow our OCI business, which requires increased computing capacity, we must incur significant capital and operating expenditures to increase our existing data center capacity and to establish data centers in new geographic locations," the filing reads, using the TLA for "Oracle Cloud Infrastructure." These investments, the company notes, are tied to long-term commitments for infrastructure and datacenter capacity. Unlike the big three cloud providers, Oracle prefers to lease datacenter capacity from partners like Crusoe, rather than build them itself. While the filing doesn't mention OpenAI explicitly, Oracle's success as an AI infrastructure provider is inextricably tied to the model dev and its cult-of-personality leader, Sam Altman. In early 2025, Oracle joined OpenAI, SoftBank, and MGX to put its name on the so-called Stargate initiative, an ambitious project to pave the planet with half a trillion dollars worth of bit barns. As we later learned, Oracle had signed up to provide $300 billion of capacity over five years as part of a long term agreement with OpenAI, which would also see the database provider manage the model dev's flagship facility in Abilene, Texas. In addition to the OpenAI deal, Oracle claims to still have about $155 billion in remaining performance obligations from other customers. This puts Oracle in a tough spot. If it underestimates demand, it could lose customers to competing infrastructure providers. On the flip side, Oracle says if it overestimates demand, or any of its key customers can't make rent, it could end up footing the bill for the datacenter capacity it leased on their behalf. Oracle's OpenAI deal will reportedly contribute up to $30 billion in revenues annually, with revenues expected as early as next year. But OpenAI still hasn't managed to turn a profit, which means its ability to pay its bills depends entirely on its ability to continue raising capital. Our business is, and may continue to be, exposed to risks of customer non-payment and non-performance," the company wrote. Well, yes. And even if they pay up, there's no guarantee its customers will renew their leases. If customers do not renew their contracts, we may be unable to re-lease, repurpose or assign such capacity on acceptable terms, if at all," the filing reads. Customers' ability to pay their bills may not be the only risk factor facing Oracle's AI gamble. As the company notes, it is already having trouble securing enough power at fair prices to fuel its datacenter buildout. We have faced, and may continue to face, challenges with securing reliable and cost-effective power sources for our data center energy demands, which are constrained globally due to the significant increase in demand for and limited availability of energy to power AI compute," the company wrote. "In addition, power prices can be volatile, including due to extreme weather events and market structure in certain regions, and increases in energy costs can adversely affect our margins, particularly where customer pricing is fixed or committed." Oh, and then there's the fact that building datacenters is not for the faint of heart in the first place. Anything that could go wrong ... could go wrong. Let's go to the tape: "Our data center expansion depends on access to suitable, permitted build sites; reliable and predictable power sources; networking hardware; and server availability, including graphics processing units, memory devices and other critical components. Data centers in geographies that we rely on may be unavailable on commercially reasonable terms or at all. Government-imposed limits or moratoria on data center construction in a given market could hinder our ability to execute our expansion plans or prevent us from completing planned data center projects. Even where suitable sites and capacity are available, our data center expansion plans are complex and subject to execution risks, including, among others, delays or cost increases related to design, engineering, permitting, construction, utility interconnection, equipment delivery and contractor performance. Our ability to build and operate data centers also may be affected by existing and evolving laws, regulations and policies relating to land use and zoning, environmental permitting, energy usage, grid reliability, greenhouse gas emissions, water usage, building codes, health and safety, tax incentives and data localization." Whew. But Oracle is in too deep to call it quits. We have made significant investments in AI initiatives, including investments in infrastructure and headcount, and we expect to continue to invest significant resources to build and support our AI products in support of our growth strategy," the company warned investors. If we do not continue to invest significant resources to develop and support our AI products, we may fall behind technological developments and evolving industry standards, which would likewise harm our ability to compete." In other words, damned if they do and damned if they don't, so what's left to do other than burn, baby, burn? And that's exactly what Ellison and crew plan to do. During its Q4 earnings call last month, the company said it planned to spend $70 billion on capital expenditures during the 2027 fiscal year, up from around $55 billion spent during its 2026 fiscal year. To support this spending spree, Oracle will have to take on additional debt. In 2027, the company hopes to raise around $40 billion in debt and equity. That's on top of the $18 billion in debt it raised back in September. Stock market bettors aren't sure they like these odds. The company's stock is down more than 40 percent in the last month.(R)