Oracle's AI Push Weighs on Stock Amid Debt Concerns

Oracle and OpenAI Data Center Partnership

Oracle and OpenAI have received approval from Michigan regulators to construct a massive data center powered by utility DTE Energy Co. The 1.4-gigawatt facility in Saline Township will be a key component of the companies' broader partnership to build over 8 gigawatts of capacity across the U.S. The expedited approval highlights the growing demand for energy to support AI and cloud computing infrastructure.

The data center is part of the Stargate campus project, which Oracle and OpenAI said represents more than $450 billion in investment over the next three years. DTE's agreement with Oracle includes cost coverage by the tech firm, as well as minimum monthly charges and a termination fee according to reports. This move underscores the increasing collaboration between energy providers and tech firms to meet the surging computational demands of AI.

At the same time, Oracle faces mounting concerns about its financial sustainability, as investors react to the company's growing debt and project funding challenges. Blue Owl Capital reportedly pulled out of a $10 billion data center project in Michigan due to unfavorable debt terms. This development has raised questions about Oracle's ability to meet its ambitious infrastructure goals and has contributed to a sharp decline in its stock price, with shares falling nearly 50% from their September high according to CNBC.

How Markets Reacted

The uncertainty around Oracle's financial position has spilled over into the broader AI sector. Oracle's shares dropped 5.4% in a single session, exacerbating a month-to-date loss of over 11%. The decline dragged down related stocks like Broadcom, Nvidia, and Advanced Micro Devices, contributing to a broader market downturn. The S&P 500 fell 1.16%, while the Nasdaq Composite lost 1.81% in its worst day in nearly a month.

Investor sentiment was further dampened by news that Oracle had raised $18 billion in new debt in September and now carries over $124 billion in total obligations, including long-term lease commitments for data centers. This has led to growing scrutiny over Oracle's leverage and its ability to manage cash flow amid rising capital expenditures.

Risks to the Outlook

Oracle's strategy to scale AI infrastructure through long-term leases and partnerships has exposed it to significant financial risks. The company has more than $248 billion in lease commitments over 15 to 19 years, with annual payments averaging around $14.6 billion. If Oracle overestimates demand or delays projects, it could face costly termination fees and reduced profitability.

OpenAI, a major tenant of Oracle's data centers, is also pushing for rapid scaling to meet future AI demand. The company's internal roadmap projects $125 billion in revenue by 2029 but also includes a projected $115 billion in cumulative losses through 2029. Compute costs are expected to surge, reaching nearly $100 billion by 2030 as AI models grow in complexity.

Meanwhile, Oracle's expansion plans have broader implications for the energy and infrastructure sectors. The data center boom is reshaping power markets, with facilities now consuming as much electricity as small cities. Utilities like DTE are increasingly focused on accommodating high-demand clients, even as regulators scrutinize the environmental and economic impacts of such large-scale projects.

What This Means for Investors

Investors remain split on the AI sector's long-term potential. While Bank of America analysts suggest the AI trade could continue to rally into 2026, they caution that rising valuations may reflect growing speculative bubbles. Oracle's challenges highlight the balancing act for tech firms: securing funding and infrastructure while managing the financial risks of a rapidly evolving industry according to CNBC.

For Oracle, the path forward depends on its ability to execute large-scale projects without overextending its balance sheet. The company has denied delays in its data center timeline, stating it has selected another equity partner for the Michigan facility. However, any setbacks could disrupt its plans to position itself as a leading AI infrastructure provider.

Oracle's partnership with OpenAI remains a key focus, with both firms committed to advancing the next generation of AI models. But as Blue Owl's withdrawal illustrates, securing financing for these projects is becoming increasingly complex. The stakes are high, with Oracle's stock trading 48% below its 52-week high and its broader AI ambitions on the line.