oracle will report its third-quarter results on Tuesday, which will be an unofficial test for the artificial intelligence industry.
Investors have been anxious to know the pace of dilution of current shareholders since the company announced a $50 billion financing plan that included debt and equity in early February.
“Rhythm is important,” DA Davidson equity analyst Gil Luria told CNBC.
Of the hyperscalers leaning toward AI cloud computing, Oracle has had to rely the most on fundraising to fund its ambitious data center construction plans. Credit investors who spoke to CNBC said the company’s latest borrowings included $5 billion in convertible senior notes and about $25 billion in senior notes of various maturities. This contract is oversubscribed, indicating strong demand.
Oracle’s ability to provide data center assets to OpenAI, a major customer, is of paramount importance to investors.
Late Friday, Bloomberg reported that contract expansion talks with OpenAI in Abilene, Texas, had collapsed. A person familiar with the situation told CNBC that Oracle’s deal to provide eight sites to OpenAI is progressing well and on schedule. The sources requested anonymity to discuss confidential matters.
OpenAI executive Sachin Katti later posted to X that the company is considering expanding its presence in Abilene, but is also looking at other markets across the United States.
“We considered expanding it further, but ultimately chose to locate the additional capacity elsewhere,” Katti wrote. “We currently have more than six sites in development across multiple states, including one in Wisconsin that we are building in partnership with Oracle, where the first steel beams were installed this week.”
Katti is responsible for spearheading OpenAI’s computing infrastructure and previously held the roles of Chief AI Officer and Chief Technology Officer. intel.
The market is sensitive to any developments related to Oracle’s $300 billion deal with OpenAI.
News of the deal initially sent Oracle’s stock price up 35% last September, the biggest intraday gain since 1992. The deal strengthens Oracle’s position as a major competitor in the AI cloud computing space, aligning it with Oracle. Amazon, google and microsoft.
But in late fall, Oracle surprised the market by raising a significant amount of debt, raising investor concerns that building AI would be expensive and strain its balance sheet.
Oracle’s five-year credit default swap expanded as bond investors doubted the enterprise software company’s ability to maintain an investment-grade credit rating, which is currently two notches above junk.
Credit default swaps are like insurance for investors, with the buyer paying compensation in case the borrower is unable to repay the debt. Bond investors told CNBC that bonds have become a popular way to hedge the risks associated with AI trading.
In addition to future capital increases, Wall Street will be looking to get a clearer picture of the return on investment for Oracle’s AI investments when the company reports earnings on Tuesday.
Analysts also speculate that the company may undergo consolidation measures to rationalize costs.
TD Cowen said in a Jan. 26 note to clients: “Our channel checks indicate that Oracle is considering multiple directions to address its financing issues: 1) RIFs (reductions) of 20,000 to 30,000 employees, which could increase free cash flow by up to $8 billion to $10 billion.”
Analysts there added that securing a sale or vendor financing deal could also be in the cards.
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