Oracle Corporation (ORCL.US) annual report points out the risk of data center investment, will the pressure test of US stock AI narrative be welcomed?

Cloud computing giant Oracle Corporation (ORCL.US) issued a new warning to investors in its annual financial report that all investments in data centers may not bring returns. This information was disclosed in Oracle Corporation's annual financial report, which detailed the company's plans to invest heavily in artificial intelligence infrastructure for clients such as OpenAI. The report also outlined various risks associated with this costly investment. Oracle Corporation pointed out that the construction of data centers may ultimately be more expensive or take longer than expected. This could be due to supply chain issues, government restrictions on data center construction, or third parties failing to complete projects on schedule. Oracle Corporation also stated that if it is unable to obtain data center capacity at affordable prices, or fails to accurately plan and manage its infrastructure capacity needs, its profitability may decrease. The company noted that in order to develop its Oracle Cloud Infrastructure (OCI) business, which requires more computing power, it must invest significant capital and operational expenses to expand existing data center capacity and build new data centers in new geographical regions. The company added that as part of these investments, it has already - and expects to continue to - enter into long-term leasing commitments with third-party data center suppliers, as well as various arrangements with chip and other data center infrastructure suppliers. Oracle Corporation noted that underestimating customer demand or its own data center capacity needs could lead to a shortage of available infrastructure, limiting its ability to support customer growth and potentially losing business to competitors. In its submitted 10-K annual report filing, Oracle Corporation stated, "Conversely, if we overestimate customer demand, or if any key customer is unable to pay or perform under contracts, we may be locked into commitments and related capital expenditures for excess data center capacity for multiple years without corresponding revenue. In addition, the terms, renewal options, and price adjustments in our long-term data center leases do not necessarily match the terms and pricing in our customer contracts; if customers do not renew, we may not be able to sublease, repurpose, or otherwise dispose of such capacity on acceptable terms, or at all." Most large tech companies list data center-related risks in their financial filings. Only six companies - including Oracle Corporation, Microsoft Corporation, and Meta - have committed to investing $850 billion in data center leases that have not yet begun. Due to Oracle Corporation's $300 billion "Stargate" contract with OpenAI, Oracle Corporation holds the largest share in these commitments. As part of the Stargate project in collaboration with OpenAI, Oracle Corporation is developing large-scale data centers across the United States to provide cloud computing power. "Our leverage with some customers may be relatively high and may face operational and regulatory risks of its own; even if our credit review and analysis mechanisms operate correctly, in transactions with such parties, there may be risks of default and non-payment. In certain OCI products, we have high concentration with several large customers, which may exacerbate these risks," Oracle Corporation stated in the document. Hidden worries in US stocks under the AI capital expenditure frenzy If Oracle Corporation were to be the first to cut back on artificial intelligence (AI) capital expenditures due to lower-than-expected returns, this would not just be a financial adjustment for one company in the current Wall Street environment, but could likely be a landmark event triggering the collapse of the entire AI supercycle "domino effect." If AI capital expenditures were reduced, the impact on US stocks would be structural rather than temporary. In the short term, it could lead to a revaluation of the AI infrastructure sector and overall volatility in tech stocks; in the medium term, if more cloud providers are exposed to similar "input-output" mismatches, the market will fundamentally question the sustainability of the AI supercycle, shaking the core narrative of the current bull market in US stocks. If Oracle Corporation reduces capital expenditures, the most immediate victims would be its upstream suppliers. Doubts about the "realization capability" of AI would be fully confirmed, leading to a systemic collapse of valuation logic. Chip and server giants like NVIDIA Corporation, AMD, and Super Micro Computer, Inc. would face a "performance-valuation" double kill. What has supported these companies' market capitalizations of trillions in the past are the "limitless" order commitments from major cloud giants. Once Oracle Corporation cancels orders, it means that upstream orders have peaked or declined, and the Philadelphia Semiconductor Index could replay the "stampede-style crouch" warned by US Bancorp. Data center REITs (such as Equinix and Digital Realty), utility power stocks, and industrial parts suppliers (such as liquid cooling and transformer manufacturers) would also cool down. In the past year, mega-enterprises like Microsoft Corporation, Meta, Alphabet Inc. Class C, and Amazon.com, Inc. have been trapped in a "prisoner's dilemma" arms race - none dare to reduce AI investment, fearing losing the future. Oracle Corporation's retreat would send a clear signal to other tech giants. Boards of directors and aggressive Wall Street investors would use this as a reason to pressure Microsoft Corporation or Meta to also cut those "investment-only, no profit" massive capital expenditures. Once the industry reaches a consensus on "cutting costs to preserve profits," the "core engine" that has supported the bull market in US stocks in the past two years will be shut down. As the weight of tech giants in the S&P 500 and Nasdaq 100 indices has reached its highest level in 40 years, a correction in tech stocks will inevitably drag down the broader market, but will also give rise to a new market landscape. This does not mean the failure of AI technology, but rather signifies a thorough liquidation in a backdrop of high margin debt and leverage approaching historical peaks. The US stock market will experience painful retractions and bubble squeezes in the short term, followed by a shift in focus in the entire tech industry from "crazy chip buying, building data centers (hardware)" to "how to truly help customers save money, make money with AI (software and application monetization)." This is also a necessary pain for US stocks to move towards the next stage of a more moderate bull market.