Oracle’s AI Ambitions Face a Costly Reality Check

While securing high-profile partnerships with TikTok and OpenAI represents a significant operational victory for Oracle, a wave of investor skepticism has recently swept through the market. The driving force behind this shift is not a lack of demand, but rather the staggering capital expenditure required to fuel its artificial intelligence expansion. This concern has triggered a sharp sell-off, with the stock losing over 13% in a week and trading at €165.90, a notable distance from its 52-week high above €280.

The imminent finalization of a deal granting an investor group, including Oracle, control over TikTok's U.S. operations underscores the company's strategic positioning. Serving as the "Trusted Security Partner" to manage U.S. user data in its cloud is a major endorsement. However, this success story is also a primary source of current financial anxiety. Scaling infrastructure to handle the data demands of TikTok and the computational needs of clients like OpenAI necessitates a massive increase in capital investment.

Following its December quarterly report, Oracle's management already signaled substantially higher expenditures for fiscal year 2026, a move that pressured free cash flow projections into negative territory. The core issue for Wall Street is whether the company can finance these enormous upfront costs without inflicting long-term damage on its profitability.

Analyst Downgrade Highlights Profitability Fears

This financial uncertainty prompted a direct response from analysts. Last Friday, Morgan Stanley strategists removed their buy rating on Oracle shares, downgrading the stock to "Equal-Weight" and significantly reducing their price target. Their caution stems explicitly from the cost explosion associated with building out "GPU-as-a-Service" infrastructure, a venture consuming billions.

Should investors sell immediately? Or is it worth buying Oracle?

Market experts warn that these capital-intensive investments threaten to erode earnings per share (EPS), even if the company's order book remains robust. The substantial spending required to remain competitive in the AI infrastructure race is now the central focus for shareholders, overshadowing recent partnership news.

Legal Scrutiny Adds Another Layer of Risk

Compounding the analyst criticism, Oracle now faces potential legal challenges. Several law firms have announced investigations and are preparing class action suits on behalf of bondholders. The allegation is serious: the company is accused of making misleading statements during a bond issuance in late 2025.

Specifically, the claim suggests Oracle failed to adequately disclose the true scale of additional debt needed to finance data center builds for major clients like OpenAI. This legal threat introduces further uncertainty regarding the full cost of its expansion, unsettling investors who are already closely monitoring the company's leverage.

All Eyes on the March Quarterly Report

The immediate future for investors hinges on the upcoming quarterly results, expected in early to mid-March. The report will be scrutinized for a credible roadmap detailing how Oracle intends to refinance these massive capital outlays. Until the company can provide clearer assurances on the return profile of its investments and its balance sheet strategy, the technically weakened stock is likely to remain highly sensitive to any news regarding cost developments and capital allocation.