Oracle may need to secure approximately $100 billion in new debt over the next four years to finance the infrastructure required for its cloud computing contract with OpenAI, according to an analysis by KeyBanc Capital Markets. The projection suggests the technology giant would have to borrow about $25 billion annually to build the data centers needed to service the agreement.
Key Takeaways
- An analyst report estimates Oracle needs to borrow $25 billion per year for four years to fund its OpenAI infrastructure buildout.
- The company's remaining performance obligations (RPO) increased 359% year-over-year to $455 billion, largely due to the OpenAI deal.
- Oracle's capital expenditures in the first quarter of fiscal year 2026 reached $8.5 billion, a significant increase from $2.3 billion the previous year.
- Concerns have been raised about the financial stability of the deal, as OpenAI is not yet profitable and its payments to Oracle are scheduled to begin in 2027.
The Financial Scope of the OpenAI Agreement
Oracle's landmark agreement with OpenAI sent its stock value higher after the deal was confirmed during its first-quarter earnings call for fiscal year 2026. A key indicator of the deal's magnitude was the company's total remaining performance obligations (RPO), which represents contracted but not yet delivered revenue. This figure grew by 359% year-over-year to reach $455 billion.
Despite this substantial backlog of future revenue, financial analysts suggest that Oracle's current cash reserves are insufficient to cover the immense upfront costs of building the necessary cloud infrastructure. The company's expansion is heavily reliant on fulfilling these new AI-driven contracts.
Understanding RPO
Remaining Performance Obligations (RPO) is a critical metric for companies like Oracle. It measures the total value of all signed contracts for which services or products have not yet been delivered. A rapid increase in RPO, as seen with Oracle, indicates strong future revenue potential but also highlights the immediate need for capital to fulfill those obligations.
Analyzing Oracle's Current Financial Position
To fund its AI-focused growth, Oracle has already begun taking on significant debt. The company reported approximately $82.2 billion in long-term debt as of August 31. This was followed by an additional $18 billion bond offering in September aimed at financing its expansion plans.
According to its most recent earnings statement, Oracle holds around $10 billion in cash and cash equivalents. However, it also has about $9 billion in debt scheduled for repayment within the next year, placing pressure on its liquidity.
Capital Expenditure Surge
Oracle's capital expenditures (capex) saw a dramatic increase, rising to $8.5 billion in the first quarter of fiscal year 2026. This is a substantial jump from the $2.3 billion spent during the same period in the previous year. This spending surge has contributed to a 152% year-over-year decline in the company's free cash flow.
Dual Financial Pressures on Oracle and OpenAI
The financial arrangement creates a cycle of dependency between the two companies. Oracle is borrowing billions to build infrastructure, with the expectation that OpenAI will generate enough revenue to pay for it. However, OpenAI itself is not yet a profitable enterprise and relies on investor funding to sustain its operations.
Ratings firm Moody's has highlighted this dynamic, expressing concern over the deal's feasibility. The firm noted the "counterparty risk" associated with OpenAI, questioning whether the AI company will be able to meet its financial obligations once the infrastructure is built and payments become due starting in 2027.
OpenAI's Path to Profitability
OpenAI's financial model continues to prioritize growth over immediate profit. While the company reported annual recurring revenue of $10 billion and has suggested it could reach $20 billion this year, it is not expected to become cash-flow positive until the end of the decade. This timeline leaves a significant gap where it must continue to raise capital to fund its operational costs and its commitments to partners like Oracle.
This situation has drawn comparisons to the dot-com era, where many companies with high valuations and rapid growth failed to establish a sustainable path to profitability. The success of the Oracle-OpenAI partnership hinges on the continued expansion of the AI market and OpenAI's ability to successfully monetize its technology at an unprecedented scale.
Market Concerns and the AI Bubble
The scale of the debt required for AI infrastructure has led to broader discussions about a potential bubble in the artificial intelligence sector. Even OpenAI CEO Sam Altman has publicly referred to AI as a bubble, though one he believes is necessary to inflate to drive progress.
The primary concern is whether the return on investment (ROI) from AI technologies will materialize quickly enough to justify the massive capital outflows. Many large enterprise customers are still in the early stages of implementing AI and have yet to see clear, quantifiable financial returns from their investments.
"If that sounds to you a lot like the growth-over-profit model that presaged the dot-com collapse, you're not alone in thinking so," noted industry observers when the deal was first announced.
With OpenAI's payments to Oracle scheduled to begin in approximately 18 months, the financial markets will be watching closely. Any disruption in financing for either company could have significant ripple effects across the technology industry, potentially testing the sustainability of the current AI investment boom. Oracle did not provide a comment on the financial analysis.
