Oracle Corp plans to raise US$45 billion to US$50 billion this year through a combination of debt and equity sales to build additional cloud infrastructure capacity, reflecting the scale of financing needed to feed demand for artificial intelligence (AI).
Oracle is raising money to build additional capacity to meet the contracted demand from the company’s largest cloud customers, including Advanced Micro Devices Inc, Meta Platforms Inc, Nvidia Corp, OpenAI, TikTok Inc and xAI Corp, the company said in a statement Sunday.
The announcement coincides with persistent fears about whether massive AI-linked investments by tech companies such as Oracle can pay off. The company’s shares have fallen about 50 percent from its record high on Sept. 10, wiping out roughly US$460 billion in value.
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Developing AI data centers has pushed Oracle’s free cash flow negative, where it is expected to stay until 2030, according to data compiled by Bloomberg. The company is on the hook for tens of billions of dollars in spending, largely on semiconductors and leases.
A succesful raise could help Oracle begin to dig itself out of its pit, said Gil Luria, an analyst at DA Davidson & Co.
The company plans to raise half of the funds via equity-linked and common equity issuances, including mandatory convertible preferred securities and through an at-the-market equity program of as much as US$20 billion.
Issuing equity would help send a message to the market that Oracle is serious about maintaining its investment-grade debt rating, wrote John DiFucci, an analyst at Guggenheim, in a January report.
The rest of its funding target would be raised via bonds issuance early this year. The company borrowed US$18 billion in last year in what was one of the year’s largest corporate bond offerings.
However, the debt market might not have an appetite for this much investment-grade debt from Oracle given its commitments and trading in its credit default swaps, Luria said. Issuing equity might hurt the company’s stock price, he said.
As Oracle debt swelled and Wall Street raised concerns of an AI bubble, investors rushed to buy credit default swaps tied to Oracle, which by December pushed the prices on some of the derivatives to the highest since the 2008 financial crisis.
A key part of Oracle’s cloud investment is its contract with OpenAI, which has committed to spending about US$300 billion to rent servers from Oracle. OpenAI is not profitable, adding to worries about the financial strains from huge capital expenditures without a clear timeline for returns.
Making this significant of an announcement on a Sunday afternoon is unusual for a mature company such as Oracle. The timing, “could be the management team trying to stop the endless slide in the share price by trying to give investors some hope ahead of Monday’s open,” Luria said.
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