Oracle Corp. reported a significant increase in remaining performance obligations (RPO), up 438% in US dollar terms, in the latest financial results announcement. The surge highlights Oracle's rapid expansion in the artificial intelligence (AI) cloud sector, but also rekindles concerns about the company's growing heavy reliance on OpenAI.
The Wall Street Journal cited insiders who disclosed that Oracle signed a five-year cloud computing deal with OpenAI valued at US$300 billion, which accounted for most of the recent rise in obligations. This deal underscores the deepening partnership between Oracle and OpenAI in the AI cloud business.
Financial experts, however, remain cautious about the implications of Oracle's reliance on OpenAI. Analysts from Bernstein Research and D.A. Davidson, quoted by Reuters, noted that while the contract improves Oracle's reported figures, investor concerns persist about the stability and long-term fundamentals of the AI infrastructure sector. The question is whether Oracle's financial health could be jeopardized should OpenAI face operational or funding challenges.
OpenAI's profitability and funding challenges create uncertainty
OpenAI, currently valued at around US$500 billion, has yet to achieve profitability. According to internal financial documents obtained by foreign media outlets, the AI developer anticipates an operating loss of US$74 billion by 2028, which would represent 75% of its total revenue. This forecast contrasts sharply with competitor Anthropic, which is expected to break even that same year. OpenAI's funding model for its expanding data center operations remains opaque, contributing to investor unease.
Oracle has sought to calm market concerns by emphasizing its commitment to a broader customer base beyond OpenAI. In October, the company projected its cloud infrastructure revenue would increase to US$166 billion by 2030, pointing to a diverse portfolio of clients that also includes a US$20 billion agreement with Meta Platforms Inc. This effort aims to present Oracle as less dependent on any single customer despite the prominence of its OpenAI contract.
Rising debts signal broader industry trends and investor shifts
The expansive cloud deals and accelerated investments in AI infrastructure have led to increased debt issuance among major technology companies. Following Oracle's multi-hundred-billion-dollar agreement with OpenAI, Oracle raised US$18 billion in debt. Similarly, Meta Platforms issued US$30 billion in bonds in October to finance its own data center expansion. Market watchers note a shift in investor focus from simply scaling cloud and software operations toward evaluating metrics more aligned with AI adoption and future earnings potential, such as user counts and recurring performance obligations.
Article translated by Jingyue Hsiao and edited by Jack Wu
