Oracle (ORCL +1.58%) has, in recent months, experienced a decline in valuation – a fall of 37% over six months, and 24% year-to-date. This is not merely a correction in the inflated valuations common to the technology sector; it is a symptom of a deeper unease. The company is engaged in a costly pursuit of dominance in the cloud infrastructure market, a pursuit financed, increasingly, by debt. The situation demands a dispassionate assessment, divorced from the optimistic pronouncements of company spokesmen and the excitable chatter of investment analysts.
The Weight of Ambition
Oracle forecasts a substantial increase in revenue from its Oracle Cloud Infrastructure (OCI) segment – from approximately $10 billion to $144 billion by fiscal 2030. Such projections, while not inherently dishonest, are presented with a troubling lack of context. The company intends to achieve this growth through a multi-pronged approach: public clouds, deployment within the infrastructure of competitors like Amazon, Microsoft, and Alphabet’s Google Cloud, and on-premises hybrid solutions. This is, in essence, an attempt to be everywhere at once, a strategy that often results in being effective nowhere.
The rationale is ostensibly efficiency and flexibility, reducing latency by keeping data closer to its point of use. However, this ignores a fundamental truth: building and maintaining such a vast network requires capital, and Oracle, unlike its larger rivals, is increasingly reliant on borrowed funds. The company now carries roughly $100 billion in long-term debt, a burden that grows heavier with each passing quarter. While Amazon and Microsoft are also investing heavily in cloud infrastructure, they do so from a position of established profitability. Oracle, in contrast, is attempting to build its future on credit, a precarious foundation indeed.
Margins and Dependencies
The expansion of OCI has been aided by substantial commitments from companies like OpenAI and Meta Platforms. However, the terms of these agreements remain opaque. It is unclear whether Oracle is winning these contracts through genuine technological superiority or simply by offering overly generous pricing. The company’s remaining procurement obligation (RPO) backlog stands at $523 billion, but this figure tells us little about the actual profitability of these deals.
Consider the margins achieved by Oracle’s competitors. AWS generated $45.6 billion in operating income on $128.7 billion in revenue in 2025, a margin of 35.6%. Microsoft’s cloud segment has achieved an even higher margin of 43%. To assume that OCI will replicate these figures, particularly in the short term, is to indulge in wishful thinking. It will take considerable time, if ever, for OCI to generate sufficient free cash flow to meaningfully reduce Oracle’s debt burden.
The OpenAI Question
Perhaps the most troubling aspect of Oracle’s strategy is its growing dependence on OpenAI. The latter is poised for a public offering, potentially at a valuation of $850 billion. While this may appear to be a boon for Oracle, it also introduces a significant risk. OpenAI’s future funding requirements are substantial, and it is unclear whether the company will be able to sustain its current level of investment. Should OpenAI delay or cancel its commitments to Oracle, the latter would find itself in a difficult position, lacking the capacity to quickly redirect resources to alternative customers.
A Calculated Gamble
Oracle is undoubtedly an ambitious, high-risk, high-potential-reward play. It may appeal to investors who believe that the company’s aggressive spending is a justifiable long-term investment. However, leverage is a double-edged sword. It can amplify gains, but it can also magnify losses. Now, with Amazon and Microsoft escalating their own cloud spending, Oracle faces even greater pressure. The company is only worth considering by those with a very high tolerance for risk – and a clear understanding of the precariousness of its current position.
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2026-02-27 01:37