Oracle’s investments in AI may prove costly. Investment bank TD Cowen says the company hopes to reduce costs to finance its ambitious AI infrastructure build. To that end, it has already accumulated $58 billion in debt in two months. A round of layoffs affecting 30,000 employees is possible, while even a spin-off of Oracle Health, formerly Cerner, is being considered.
Since September, Oracle has lost half of its market value, which currently stands at just under $400 billion. On top of other negativity surrounding AI, the company is facing significant financial headwinds. In a press release, it stated that the alleged dispute between Nvidia and OpenAI has “zero impact” on the relationship between Oracle and OpenAI, and says it is “very confident” in the ability of CEO Sam Altman’s company to honor its commitments.
According to investment bank TD Cowen, the layoffs could free up $8 to $10 billion for Oracle. The company is also considering selling Oracle Health, which consists of Cerner. Oracle acquired that company in 2022 for $28.3 billion. The question is whether this will provide the financial basis for the investments Oracle plans to make. TD Cowen estimates that this will amount to around $156 billion.
Higher costs
Several US banks are said to have withdrawn from financing data center projects linked to Oracle. “Both shareholders and creditors are questioning Oracle’s ability to finance this expansion,” according to the TD Cowen report. Asian banks were reportedly willing to lend money for Oracle’s plans at higher rates.
However, the higher costs have still brought deals to a halt. “Several Oracle data center leases that were under negotiation with private operators were unable to secure financing, preventing Oracle from obtaining the data center capacity through a lease,” the report said. Without financing, private data center operators cannot build the facilities Oracle needs, creating a bottleneck in the rollout of the company’s AI infrastructure.
Pressure on customers
TD Cowen further notes that Oracle’s customers are already seeing the effects of the cost-cutting measures. For example, the company now requires a 40 percent down payment for new customers and is considering a Bring Your Own Chip (BYOC) policy to shift hardware costs to the end user. These are drastic steps to get the finances in order in the short term.
If Oracle is indeed planning a major round of layoffs, this would only reinforce its commitment to AI. If the acquisition of Cerner is actually reversed (with a likely lower price tag than what Oracle itself paid), it will damage the company’s agility in finding other disciplines from which to generate revenue. There is a chance that the gamble on AI will fundamentally change Oracle, which will only be worthwhile if the technology truly delivers on its promises.
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