Here's Why Oracle Stock Slumped Today (Hint: It's Nvidia Related, But Not How You Might Think)
Key Points
Oracle stock appears to be trading as a proxy for the market's view on OpenAI's ability to raise funds.
The market needs clarity on OpenAI's funding and Oracle's ability to meet its AI spending commitments.
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Oracle (NYSE: ORCL) stock was down by more than 5% today at around 1 p.m. The move comes after some seemingly contradictory newsflow that highlighted the company's challenges and its exposure to the loss-making, cash-burning OpenAI.
Nvidia to the rescue?
As readers already know, Oracle's hefty exposure to OpenAI (the two have a $300 billion deal in which Oracle is building AI infrastructure to sell services to OpenAI) means the stock and its debt are being traded as a proxy in a debate over OpenAI's future.
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Oracle's share price has tanked (down 34% over the last three months), and its credit default swaps (CDS) have soared as capital markets are growing worried over its ability to finance the capital investment necessary to fulfill its deal with OpenAI, and the latter's ability to generate profitability.
Under these circumstances, the widely reported news that Nvidia is close to committing $30 billion to OpenAI's latest funding round should be good news. However, the reality is that the figure is nowhere near the $100 billion Nvidia was previously believed to be ready to commit.
What does it mean for Oracle?
The market's reaction highlights the company's difficulties, and Wall Street analysts are speculating that Oracle may look to sell its healthcare software business, Cerner, to improve its financial position. That said, given the pressure Oracle is under, a potential buyer is likely to negotiate hard.
All told, if Oracle really is being traded as a proxy vote on OpenAI's funding rounds, then OpenAI needs to demonstrate secure funding before investors can feel confident buying Oracle stock. Until then, the Oracle's stock and its bonds could come under pressure.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Oracle. The Motley Fool has a disclosure policy.
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