The "chief culprit" behind the collapse of the AI bull market: Oracle, the "weakest link"

AI-driven bull market is facing a harsh reality check. Amid concerns over an AI bubble, all three major U.S. stock indexes closed lower again on Tuesday, marking the S&P’s fourth consecutive decline. High-valuation tech and chip stocks, led by Nvidia, were generally under pressure, dragging the Nasdaq Composite Index down by 1.2%. (Image: Performance of major U.S. stock indexes during the day, small-cap stocks outperforming) A new fund manager survey shows that 45% of respondents see an "AI bubble" as the primary "tail risk" in the market, with worries about excessive corporate spending on AI-related projects spreading rapidly. Within this widespread anxiety, Oracle’s situation stands out. Since announcing a $300 billion blockbuster deal with OpenAI on September 10, the company’s stock price has fallen rather than risen, with its market value shrinking by about $60 billion—equivalent to the market cap of General Motors. This shift marks a significant market turning point. Just a few months ago, any collaboration with OpenAI could easily boost stock prices, but now the "OpenAI halo" is quickly fading. Investors are no longer paying just for the AI narrative, but are beginning to scrutinize the financial costs companies are paying to support that narrative, especially among those funding expansion through large-scale borrowing. Oracle’s astonishing capital expenditure and financial risk Oracle has painted a grand blueprint for growth, but its underlying financial structure appears unusually fragile. Compared to its competitors, Oracle does not have ample operating profit to support its expansion, making its bet on OpenAI resemble an all-or-nothing gamble. Specific financial data reveal the source of investor worries. At its latest analyst day, Oracle stated its goal is to achieve $166 billion in cloud computing revenue by 2030, with most of that growth starting in 2027 contributed by OpenAI. To achieve this, the company’s capital expenditure budget for the current fiscal year alone (ending next May) is as high as $35 billion. The market widely predicts that by 2029, its annual capital expenditure will stabilize at around $80 billion per year. Meanwhile, analysis suggests the company’s balance sheet is under enormous pressure: - High debt: Oracle’s net debt has reached 2.5 times its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), more than doubling since 2021, and is expected to double again by 2030. - Persistent negative cash flow: The market forecasts that the company’s cash flow will remain negative for the next five years. - Rising risk premium: The cost of hedging against Oracle’s debt default (Credit Default Swaps, CDS) has risen to a three-year high, directly reflecting intensifying market concerns over its credit risk. The fading of the "OpenAI halo" Oracle’s predicament also reflects a broader market trend—the "OpenAI halo" that once seemed to turn any related stocks into gold is rapidly fading. A few months ago, any news of cooperation with OpenAI could send stock prices soaring. AMD is a typical example: its share price surged after announcing a chip agreement with OpenAI. But now, things have reversed. Broadcom and Amazon both saw their stock prices drop after announcing collaborations with OpenAI. Nvidia’s stock barely moved after its own investment agreement in September. When cooperation with the AI leader no longer boosts stock prices, these multi-hundred-billion-dollar capital expenditure commitments lose their allure. For investors, if even the market starts to question the value of these investments, how long can the massive capital inflows fueling the AI bull market continue? The unpredictable shifts in investment sentiment are becoming the Damocles’ sword hanging over AI concept stocks. Risk warning and disclaimer: The market carries risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account individual users’ specific investment objectives, financial situations, or needs. Users should consider whether any opinion, viewpoint, or conclusion in this article is suitable for their particular circumstances. Investing based on this information is at your own risk.