Oracle Slides on AI Spending, Erases More than $100B in Market Value

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00:00What are we missing? Because there's a massive backlog here, and that's what investors wanted to

00:04see. That signals demand. But why are we seeing so much? And look, I know we're going to talk

00:09about credit, but why are we seeing so much concern from investors today?

00:13Well, it's the holiday season and the market is deciding on who they think is naughty and nice.

00:19And clearly we know where Oracle is shaping out right now. And quite frankly, I think it's

00:24overdone. I think that this whole concept of panic and bubble and financial crisis and CDS concerns

00:33really doesn't take into account the bigger picture of where this company is. So what is the

00:39market really worried about right now? So Oracle's growth last night came in a little bit slower

00:45than the equity community had hoped for. I think if this was a Microsoft or an Alphabet or an Amazon

00:53and they missed cloud growth by one or two percent, you'd see similar moves. So what else is really

01:00differentiating Oracle? Well, the difference for Oracle is that they've got the most amount of debt

01:05out of any non-financial issuer in the high-grade corporate market. They've got $100 billion of debt

01:11and they're spending a lot. And quite frankly, they're spending even more than the market anticipated.

01:15They said last night, we're going to spend $15 billion more in CapEx this fiscal year than what

01:21we had guided. So they need to borrow a lot of money. They already have a lot of debt. There's

01:26a tremendous amount of hedging that's going on that's pushing CDS wider. And quite frankly,

01:31it's just a simple story. You know, you need to spend money to make money. You have to spend a lot

01:37of money up front before you start collecting that cash. And it's just going to take a little bit of

01:41a little while for those revenues and cash flows to catch up to the amount of debt that they have.

01:45So you say, so tell everybody, take a chill pill basically, right? That you think the spending

01:50makes sense and it's just a case of time for it to pay off? Yeah. So listen, I'm a credit guy,

02:00but let's look at the stock for a second. But credit can tell us so much.

02:03Let's start with the stock. The stock is way off the highs, right? When they announced all these

02:07contracts going above $400 billion, the stock shut up. And now we're down more than 40% from the

02:14highs. But if we just go back to the beginning of the year, we're still up by 20%, right? This is a

02:18$500 plus billion market cap company. There's not a reason to panic about that. They've issued a lot

02:24of debt. They issued an $18 billion bond deal. There's been discussions about them doing some

02:30sort of private deals to fund data centers, upwards of $38 billion. That number, quite frankly,

02:36might be a lot higher. That could be $50 or $60 billion. And there's reasons behind that,

02:40because you can do a lot of this through SPVs, do it off balance sheet and protect your ratings.

02:46Oracle was very clear last night. They said it without being asked. We are committed to our

02:50investment grade ratings. It makes sense. They should be, because you don't want to have to

02:55have a balance sheet that has $100 plus billion of debt that you have to finance in the junk market.

02:59But I think what it means is there's a lot of different triggers for them to pull in order to

03:04protect their balance sheet and to eventually get spreads tighter. Now, we just have to recognize,

03:10though, in the very short term, the risks probably do outweigh the reward. You have

03:16rating agencies. How do we know that for sure? Because of the demand and the backlog? Is that

03:20what that tells us? Yeah. Well, listen, they added to their backlog by a significant amount. Now they

03:25have well over $500 billion of signed contracts. We could debate whether or not they're actually ever

03:32going to get paid for that. I think the market is doing that. Is that the concern? Well, that is the

03:37big concern that OpenAI, which might be their biggest customer, might not have enough money

03:42themselves to pay for what Oracle is building. I think Oracle is starting to try to lay out,

03:49you know, if they come, we'll build it. There's a way that you don't have to put all the capital up

03:55front. Again, there's a lot of ways to do this from a financing standpoint. You know, a whole rent-a-chip

04:01philosophy where they're not actually buying chips, say, from NVIDIA. But does the creative financing

04:07just maybe potentially, Robert, just mask, you know, there's still a spend, there's still an

04:14expectation. So even if you're creative in terms of how you finance, aren't you still potentially

04:20vulnerable if this doesn't all come to fruition? Well, they're not going out. Or takes longer?

04:24They're not using the money and buying Christmas and Hanukkah gifts for their employees. They're

04:28building assets that are going to generate these revenues and cash flow. It's part of any business

04:33build. You're not seeing these same sort of questions in the credit markets about those

04:37other big hyperscalers. You're only seeing it for Oracle because they're mid-triple B and people

04:41are worried they're going to fall to junk. So just 20 seconds, what would concern you? What piece of

04:45information would come out from the company that you would say, okay, now I actually am concerned

04:49about this? Well, the two concerns would be the rating agencies downgrade to low-triple B and keep

04:55the outlook negative and give some sort of numbers that might not be achievable. And

05:00two is when Oracle comes back in three months or six months and we don't see the type of growth

05:07that we're anticipating from their cloud and infrastructure businesses.

05:10So every quarter we get a check? You got a check every quarter.

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