Oracle Stock Drops. Why Its OpenAI Deal Is a Sink or Swim Moment.

Oracle chairman Larry Ellison has become the world’s richest person on the back of his company’s stock surge. (Photograph by Justin Sullivan/Getty Images)

Key Points

About This Summary

• Oracle shares fell 4.2% to $314.47 after a previous 36% gain following news of a large AI computing backlog.
• A $300 billion cloud-computing deal with OpenAI could drive growth but creates dependence on one customer’s success.
• Oracle’s growth relies on deals with xAI, Meta, and Nvidia, but OpenAI’s financing poses a risk.

Oracle stock was falling Thursday after its surge the previous day.

A massive cloud-computing deal with ChatGPT-developer OpenAI has the potential to drive growth but also creates a risky dependence on the success of a single customer.

Oracle shares were down 4.2% at $314.47 in early trading. That was set to put a small dent in its 36% gain the previous day, after it revealed a huge backlog of contracted artificial-intelligence computing work.

Oracle’s $455 billion of contracted business was an astonishing number and sent Wall Street scrambling to figure out where the money was coming from. The answer appears to largely lie with OpenAI.

OpenAI signed a contract with Oracle to purchase $300 billion in computing power over roughly five years, The Wall Street Journal reported, citing people familiar with the matter. OpenAI and Oracle didn’t immediately respond to requests for comments early Thursday.

Such a large deal with a single customer is likely to raise some eyebrows. Oracle had already disclosed a cloud-computing deal worth $30 billion annually from its fiscal year 2028, widely reported to be with OpenAI. However, the WSJ report implies OpenAI is expected to spend double that amount annually, while currently only generating around $10 billion in annual revenue.

That’s double-edged—if OpenAI’s ambitions pay off then Oracle will be in prime position to keep challenging Amazon.com and Microsoft as one of the largest providers of AI computing power. But Oracle will likely have to take on debt to build out the data-center facilities required, while trusting OpenAI to come through on its own commitments.

Oracle’s growth isn’t solely reliant on OpenAI—it also has deals with Elon Musk’s xAI, Facebook-parent Meta Platforms and chip maker Nvidia . KeyBanc analyst Jackson Ader noted that $141 billion of Oracle’s contracted backlog is set to be recognized as revenue more than five years into the future—suggesting it either lies outside the scope of the reported deal with OpenAI or the agreement lasts longer than five years.

“This does not reduce the customer concentration issue, but it does reduce the customer financing risk issue,” Ader wrote in a research note.

Write to Adam Clark at adam.clark@barrons.com