Analyst Warns of Potential Stock Market Crash Triggered by Oracle's AI Bet
A veteran financial expert forecasts a potential market downturn, with Oracle identified as the 'first domino' due to its heavy investment in OpenAI.
A significant stock market crash could be imminent, with technology giant Oracle positioned as a primary vulnerability, according to veteran financial analyst David Desjardins.
Desjardins expressed concerns that Oracle's substantial investments in artificial intelligence infrastructure, particularly its deep ties with OpenAI, could lead to a market collapse if these ventures falter. Oracle's stock has experienced a notable decline, falling nearly 50 percent since early June, as investors react to mounting financial pressures.
Adding to these concerns, S&P Global downgraded Oracle's credit rating to BBB- on July 9, placing it just one notch above junk bond status. The rating agency cited Oracle's rapidly expanding AI infrastructure business as a factor diluting its overall business risk profile.
Oracle's AI Infrastructure Investment
Oracle has made substantial capital expenditures to build large-scale data centers intended to power AI technologies. The company spent $55.7 billion on its data center base in fiscal year 2026, with projections indicating a roughly 70 percent increase to $90 billion in fiscal year 2027. This aggressive buildout contrasts with a shift in cash flow from a positive $11.8 billion in fiscal year 2024 to a negative $23.7 billion in fiscal year 2026, suggesting the company is spending cash at a faster rate than it is earning it.
"A highly cash-generative software and database company has become highly dependent on external capital to fund its aggressive AI infrastructure buildout," S&P noted in its assessment.
To finance this expansion, Oracle plans to raise an additional $40 billion through a combination of debt and equity offerings. The company faces a critical need for external capital as its bank balance diminishes.
Dependence on OpenAI
A core element of Desjardins' warning centers on Oracle's significant reliance on OpenAI, the company behind ChatGPT. SEC filings indicate that Oracle has approximately $638 billion in future contract volume, with roughly half of this amount attributed to OpenAI. S&P also identified OpenAI as a "central credit risk" for Oracle, highlighting the potential implications of a single major customer's financial instability.
OpenAI is reportedly seeking substantial funding, including a potential initial public offering, to meet its financial obligations. Desjardins warned that if OpenAI faces difficulties securing capital or if the broader AI market experiences a downturn, Oracle's substantial debt load and infrastructure investments could be left exposed. He suggested that if OpenAI were unable to meet its payment obligations, Oracle could be left with long-term data center rental agreements that are difficult to terminate or transfer.
The success of Oracle's data center investments is also crucial for the semiconductor industry. The capital expenditures by hyperscalers like Oracle are recorded as revenues for semiconductor manufacturers. A significant downturn for Oracle could therefore have a cascading effect on chipmakers, potentially turning the current AI boom into a substantial bust.