By Christine Ji

Oracle’s massive data-center buildout will require the company to take on new financing strategies – and new risks

Oracle issued $18 billion of debt in September to finance its data-center buildout.

Since Oracle Corp. stunned investors last month with its massive artificial-intelligence pipeline, shares of the company have pulled back from their peak as questions emerge about how the company will afford the massive data-center buildout required for its growth.

Oracle (ORCL) doesn’t yet have the AI infrastructure to fulfill its $455 billion of remaining performance obligations, or the contracted future revenue from signed deals not yet delivered, which is a key concern among investors.

With nearly $6 billion in negative free cash flow over the last four quarters, Oracle is facing questions about how it can afford its AI ambitions. Oracle’s stock was trading at $291.59 on Monday, up 75% year to date but down 16% from its all-time high of $345.72.

Some on Wall Street are optimistic about Oracle’s ability to execute on its contracts. In a note Monday, Mizuho analyst Siti Panigrahi called funding concerns “transitory.” He believes Oracle “can leverage a combination of debt, vendor financing, leasing and creative partnership structures similar to those emerging across the broader AI ecosystem.”

However, Michael Green, portfolio manager and chief strategist at Simplify Asset Management, believes implementing these financing strategies will further push the AI trade into bubble territory. High levels of leverage will create hidden risks that can dramatically worsen if AI demand turns out to be lower than expected, Green told MarketWatch.

Oracle has already been getting “creative” with its financing, according to Baird managing director Ted Mortonson. Last month, the company issued a $18 billion 40-year bond, surprising some on Wall Street with its long duration. Oracle has also increasingly turned to finance leases to fund its data centers in the last year, allowing it to spread out the cost of an asset over its useful life instead of incurring a large upfront cash-flow hit associated with traditional capital expenditures.

Panigrahi also suggested that Oracle could follow a new “blueprint” for the industry by leasing Nvidia Corp.’s (NVDA) graphics processing units instead of purchasing them, referencing a report from The Information about OpenAI’s similar plans.

Also read: Why Oracle’s ‘jumbo’ AI-fueled bond deal is so unusual

While Panigrahi anticipates Oracle’s free cash flow to remain negative in the coming quarters, he sees this trend as “a timing issue rather than a structural concern given the strong visibility from multi-year customer contracts,” pointing out that data centers are monetized “within weeks” once they come online. Panigrahi sees a path for Oracle to cross the trillion-dollar market-capitalization threshold, joining the ranks of infrastructure peers like Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN) and Alphabet Inc. (GOOGL) (GOOG).

However, if demand for AI data centers doesn’t materialize, then Oracle will be on the hook for lease and debt payments that could further eat into its free cash flow, Green pointed out. In this case, these obligations would start hitting Oracle’s balance sheet at a time when the company’s fundamentals are deteriorating from a lack of AI revenue.

The financing questions Oracle faces are hardly unique among the biggest AI players, as more companies add debt to their balance sheets and enter into circular financing agreements.

For example, OpenAI is reportedly considering tapping into debt markets to fund future data-center builds, according to a Reuters report. Additionally, OpenAI’s recent partnership with Advanced Micro Devices Inc. (AMD) gives the company valuable stock warrants that OpenAI could utilize to help pay for more AI hardware.

Panigrahi acknowledged that the prominence of vendor financing could be “inflating valuations” across the AI value chain but said that risk would be mitigated as long as demand from OpenAI, Anthropic, Google, Meta (META) and other model providers remained robust. For Oracle, the stakes are high as it leverages up, and investors will be carefully monitoring its funding plans as it moves forward with its AI buildout.

Representatives from OpenAI and Oracle did not immediately respond to requests for comment.

Read on: AMD’s stock soars toward its best day in 9 years. Here’s why OpenAI wants a stake.

-Christine Ji

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10-06-25 1704ET

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