The Oracle Corporation (ORCL.US), which ignited the AI bubble panic, urgently needs a performance that can rival NVIDIA Corporation's "explosive growth performance for 2023-2024".

The normalization of Oracle Corporation's (ORCL.US) better-than-expected growth performance is no longer enough to alleviate the strong market concerns related to the company's mounting debt and the imminent bursting of the AI bubble. Only a performance comparable to NVIDIA Corporation's explosive growth of 100%+ in 2023-2024, along with the announcement of more cloud computing orders besides OpenAI in the performance outlook, could fully mitigate the negative sentiment towards the company's fundamentals and technology stocks closely related to global AI computing infrastructure, known as the "AI bubble". Oracle Corporation, set to release its earnings after the closing bell on Wednesday EDT, has been at the forefront of the recent AI bubble narrative that has led to stock market adjustments worldwide. Now, Oracle Corporation's performance outlook and future prospects are deeply intertwined with the long-term, high-value, and yet unrealized large AI data center cloud computing infrastructure orders from OpenAI and the "Stargate" AI infrastructure project. To meet these distant future commitments, the profit margin of Oracle Corporation, which is already in distress, is being buoyed by massive debt issuance and strong capital expenditures to help OpenAI expand or build new large AI data centers; however, its free cash flow has turned negative, credit default swap (CDS) prices have soared to multi-year highs, and the increasingly high debt burden and debt repayment risk behind Oracle Corporation's strong cloud computing infrastructure orders tied to OpenAI cannot be ignored. Valued at up to $500 billion, global AI leader OpenAI has recently entered into AI computing resource supply agreements with a host of tech giants worth billions of dollars, with the overall scale approaching the massive $1.4 trillion AI computing infrastructure expenditure plan envisioned by OpenAI CEO Sam Altman. These exaggerated orders, as well as Alphabet Inc.'s Gemini3 already starting to erode the ChatGPT user base, have increased market concerns about OpenAIs ability to withstand such massive expenditure. If OpenAI faces a funding crunch, it will undoubtedly deal a severe blow to the stock prices of companies in the "OpenAI chain" led by Oracle Corporation. Therefore, the current market sentiment towards investments in the AI computing industry chain linked to OpenAI has shifted from bullish to questioning (in contrast, after the emergence and rapid popularity of Gemini3, the bullish sentiment towards the "Alphabet Inc. Class C AI chain" has quickly heated up), and the uncertainty about Oracle Corporation's fulfillment of future contracts with OpenAI has exacerbated. When Oracle Corporation's valuation-debt-cash flow triangle appears fragile, it is analogous to the "high-leverage gambler" betting on future returns in this round of AI investment frenzy, rather than the stable image of the mature tech giant that Oracle Corporation has portrayed in the past. If OpenAI's user revenue or the growth and expansion of the AI computing industry chain slows significantly, Oracle Corporation is likely to become the catalyst for the bursting of the global tech company credit bubble and stock overvaluation bubble, akin to the "AI bubble burst" reminiscent of the 2000 dotcom bubble burst. Oracle Corporation's routine better-than-expected profits are not enough to alleviate market concerns. Three months ago, Oracle Corporation's stunning performance expectations and massive cloud computing infrastructure orders propelled its stock price to soar, marking its best performance in thirty years. However, just a quarter later, this database software manufacturer and cloud service provider, as well as the overall AI computing power industry, appear to be on a different trajectory. Since hitting a historic high on September 10 - when the surge was driven by a sharp increase in its cloud computing business orders, Oracle Corporation's stock price has plummeted by 33%. Today, Oracle Corporation and many other AI tech companies are facing waves of doubt, stemming from the mismatch between the hefty capital expenditures of tech giants and revenue paths, as well as the "ironclad cyclical financing" arranged and spearheaded by OpenAI. "They are pushing their balance sheet to the limit, with negative free cash flow and highly leveraged balance sheet." stated Jed Ellerbroek, portfolio manager at Argent Capital Management, which holds shares of Oracle Corporation. "They are really stretching themselves thin." As shown in the chart above, Oracle Corporation's stock price has recently experienced sharp fluctuations, erasing the 43% increase after the strong financial report released in September. Oracle Corporation's significant debt risk is particularly concerning to investors. The company has recently issued hundreds of billions of dollars in bonds through bond issuance and indirectly supported projects. Last week, the cost of CDS trades protecting Oracle Corporation debt from default reached its highest level since March 2009. Wall Street analysts tracking the company widely believe that this long-term uncertainty outweighs any positive news in its quarterly financial report. "It's not just about how fast they are growing, but it's a cognitive issue about how they achieved these grand goals, and how they financed all of this," said Ryuta Makino, an analyst at Gabelli Funds. "During the construction of large AI data centers globally, they will have negative free cash flow for the long term, so there are many questions surrounding this issue." Wall Street analysts anticipate that the tech giant, based in Austin, will continue to see a surge in its backlog of cloud computing orders in its second quarter (ending November), mainly coming from OpenAI; the remaining performance obligations (known as RPO) - which played a crucial role in the over 30% surge in Oracle Corporation's stock price at the end of September - are expected to reach around $520 billion, representing a growth of over 400% from last year, and are projected to continue rising in the next quarter. If cloud computing orders or RPO fail to achieve explosive growth similar to NVIDIA Corporation's in 2024, and if cash flow remains negative, Oracle Corporation could face a sharp decline. Cognitive issue "It's not just about the growth rate but about how they are achieving these goals," said Michael Sansoterra, chief investment officer at Silvant Capital Management, which holds Oracle Corporation shares in its portfolio. "I'm not sure if the earnings report can change this unfavorable situation. I guess this quarter's earnings report will be good, the guidance is expected to be good, but whether they will be well received by the market remains to be seen." Wall Street analysts expect Oracle Corporation to report a year-over-year increase of 11% in adjusted earnings per share, and total revenue is projected to increase by around 15%. According to institutional data compiled, the company's gross margin is expected to be close to 69%, possibly lower than last year's 71%. The most significant changes are reflected in its capital expenditures, projected to reach $8.2 billion, compared to less than $4 billion last year, and free cash flow is expected to be negative $5.9 billion, compared to positive $2.7 billion last year. During the earnings conference call, Oracle Corporation's executives are likely to be questioned on numerous topics concerning OpenAI's orders and revenue prospects, after the latter signed a massive contract worth billions of dollars with Oracle Corporation in September for cloud computing infrastructure services. Investors are closely monitoring Oracle Corporation's expected revenue and the diversification of cloud computing orders/RPO sources, with any significant new type of client signed during the quarter likely to be warmly welcomed by market investors. "I've always thought that the company's binding of its future with numerous AI startups while assuming a massive leverage is dangerous. Now that OpenAI is in trouble, the risk has increased," said Michael O'Rourke, chief market strategist at Jonestrading. "If OpenAI's execution progresses slowly or fails, Oracle Corporation's management will have to come up with contingency plans." Regardless of the outcome, options traders expect Oracle Corporation's stock price to experience significant volatility due to the post-earnings report, with the stock price expected to fluctuate within a range of 10% (i.e., rise by more than 10% or fall by more than 10%). The stock has recently seen a clear rebound, rising nearly 10% in December. In terms of valuation, the stock is relatively expensive, with a price-to-earnings ratio of around 30x based on expected earnings for the next 12 months, far exceeding its 10-year average of 17x, and higher than the Nasdaq 100 index's expected price-to-earnings ratio of 26x. All these factors have led some investors to adopt a cautious stance on buying Oracle Corporation at present. Sansoterra from Silvant Capital stated that he is currently in a cautious wait-and-see mode. "If we see any degree of improvement in the gross margin, or if the trend of improving the gross margin is not just talk but actual execution, then we would be more interested," he said. "But we haven't seen that yet, and we don't invest in any future-based investments."