Oracle's recent stock surge has been astonishing, with a single-day increase of over 40%, and its founder, Larry Ellison, briefly became the world's richest person. Behind this, there seems to be a surprising secret: Oracle's revenue growth is almost entirely dependent on a $300 billion contract signed with OpenAI.
According to the latest financial report, Oracle's unconfirmed performance obligations (RPO) have surged threefold in just three months, reaching $455 billion. The company expects its cloud business revenue to reach $18 billion next year, a 77% increase from the previous year, and this number will continue to rise over the next four years, eventually reaching $144 billion. Oracle claims that most of the amounts in the orders are already confirmed. However, this "remarkable transformation" hides significant risks.
Insiders revealed that Oracle's five-year contract with OpenAI accounts for 94.6% of the newly added RPO in the latest financial report. This contract involves providing services worth more than $60 billion annually to OpenAI starting in 2027, while OpenAI disclosed an annualized revenue of about $10 billion last year, which is undoubtedly a high-stakes gamble for both parties. To meet the computing power requirements of this contract, Oracle may need to make large investments in AI chips.
At the same time, to cope with the upcoming financial pressure, Oracle's executives are considering canceling cash raises and bonuses for employees and may compensate them by issuing additional shares. In addition, the company's capital expenditures have risen sharply, leading to negative free cash flow, which means Oracle is going through a period of "wild spending."
Although the market is full of optimism about Oracle's future, investors should be cautious: is this collaboration with OpenAI a win-win opportunity or a risky gamble?
