Oracle Sinks on Debt Fears, OpenAI Weighs Drastic Price Cuts

**Zaid Admani** (0:00)
Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zaid Admani, and today is Thursday, June 11th. In today's episode, we'll break down the latest escalation in the Iran War, and another hot inflation report. We'll also tell you why Oracle stock is dropping despite strong earnings, and why OpenAI is considering slashing its prices. Then stick around to the end of the show to find out why World Cup ticket scalpers are about to lose big. We got a great show for you today.
Let's go.
Markets took another step down on Wednesday. The S&P 500 dropped 1.6%, closing at its lowest level in five weeks. And the NASDAQ was even worse. It fell 2%.
You know, I think there are a couple things going on here. For one, chip and AI stocks just continued to get dragged down. The SOC Semiconductor ETF was down 3.7% yesterday, and it's now down 12% from its highs from last week. And it also seems like the AI sell-off is spreading to other sectors. The industrial sector was the worst performing on Wednesday, down 3.4%. See, a lot of these industrial companies have been riding the data center buildout wave. For example, Caterpillar, which makes construction equipment, their stock has more than doubled over the last year, but shares were down more than 6% yesterday. So we're starting to see more parts of the AI trade starting to unwind. But beyond just AI, I think the market is also paying attention to what's happening in the Middle East again. Things are escalating between the US and Iran. The two sides have now exchanged fire for the second straight day. And then this morning, President Trump posted on Truth Social that the US will hit Iran, quote, very hard tonight, and that the US military plans to seize Karg Island, which handles roughly 90% of Iran's oil exports. So it seems like the war is starting to heat up again, and oil prices are taking back up. And if oil prices stay elevated, well, then inflation could continue to be a problem. In fact, this morning, we got the PPI report, which measures inflation at the wholesale level. Basically, it's the prices that businesses pay before costs reach consumers. And this report came in hot. Wholesale prices jumped 1.1% in May compared to April. That was way above the 0.7% jump that was expected. So between the AI unwind and the war reescalating and rising inflation, the market is losing momentum faster than the San Antonio Spurs in the second half of a game. Shout out to the New York Knicks, by the way. What a game last night. I'm still not fully recovered from what I saw. Anyways, we'll continue to stay on top of everything happening in the markets and the NBA Finals for that matter. So make sure you guys are locked into the podcast and tuning in every day to stay in the loop.
Let's run through some headlines. Starting with Oracle. Oracle reported earnings last night, and despite the company beating on both top and bottom line and raising their forecast, the stock still fell. And it's a good example of how the market is changing how it judges AI companies. Let's get into the numbers. Revenues jumped 21% to $19.2 billion, and the cloud infrastructure revenue grew 93% from a year ago. On top of that, Oracle's backlog of contracted future revenues hit $638 billion, which is 363% from last year. So those are some monster numbers, but the reason the stock is still down is because of spending and debt. Oracle spent over $55 billion on capital expenditure this past fiscal year, mostly to build out AI data centers. And all of that spending pushed Oracle's free cash flow to negative $23.7 billion. And Oracle is expected to increase their capex spending. It's gonna hit $70 billion for fiscal 2027 So to keep on funding this build out, Oracle says they plan to raise another $40 billion in debt and stock sales this year on top of the $48 billion they raised last year. In fact, Oracle is now the biggest corporate borrower in America outside of banks, with about $117 billion in bond debt. So all that borrowing from Oracle is starting to make investors nervous, despite the revenue numbers and the backlog numbers continuing to grow. And speaking of the backlog, there is one red flag. More than half of the $638 billion backlog is coming from a single customer, which is OpenAI. So essentially, Oracle is borrowing tens of billions of dollars to build data centers, betting that compute demand from OpenAI will stay strong for years to come. Now, to be fair, not everyone is bearish following the earnings report. Several analysts actually raised their price target following the earnings. Analyst Gil Luria from DA Davidson, who's been on the show, by the way, pointed out that even with all the spending, Oracle's operating margins actually improved from a year ago. Another analyst at Guggenheim said the CapEx fears are short term and that all that spending from Oracle should turn into, quote, cash flow waterfall by the end of the decade. The problem, though, is that the market is not in a patient mood right now, and Oracle's stock is down around 10% this morning at the time of this recording. The stock is now in the red for the year.