Why Oracle is Crashing Right Now

Ed Elson unpacks why Oracle shares are tumbling and what that means for OpenAI with Gil Luria, Head of Technology Research at DA Davidson. Then Helen Toner, Executive Director at Georgetown’s Center for Security and Emerging Technology, joins to discuss Trump’s new AI executive order. Finally, Ed checks back in with AI data center company, Fermi, and sees how the company is doing since its IPO. Check out our latest Prof G Markets newsletter Follow Prof G Markets on Instagram Follow Ed on Instagram and X Follow Scott on Instagram Learn more about your ad choices. Visit podcastchoices.com/adchoices

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• 1:24Ed Elson?

  Today's number: 60. That is the percentage of Americans who say they have had a paranormal experience. These are events that involve visions of ghosts and, in some cases, demons. In fact, I had one last night when I watched Fox and Friends.

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• 1:52Ed Elson?

  Welcome to Prof you Markets. I'm Ed Elson. It is December 16th. Let's check in on yesterday's market vitals.

• 2:00Ed Elson?

  The major indices fell ahead of the jobs report, which will be out this morning. Bitcoin dropped back below $86,000. Broadcom suffered its worst three day sell off since 2020. And finally, Tesla closed at a high for the year after Elon Musk confirmed that the company is testing driverless robot taxis in Austin.

• 2:22Ed Elson?

  Okay, what else is happening? Oracle stock has taken a serious tumble since last week's earnings miss. The stock fell roughly 11% on Thursday, following their quarterly report in which revenue fell short and it raised its capex guidance again. Shares then dropped another 5% on Friday after Bloomberg reported that Oracle has delayed completion of OpenAI-related data centers and the stock fell another 3% yesterday as shares remained under pressure. All told, Oracle is off 40% from its September peak. So here to help us make sense of what is going on with Oracle, we are speaking with Gil Luria, Head of Technology Research at DA Davidson. Gil, good to see you.

• 3:05Gil Luria?

  Good to see you. Thanks for having me.

• 3:06Ed Elson?

  So Oracle reports earnings on Thursday. Misses on revenue, not a huge miss, but then what we're seeing is a pretty phenomenal reaction, down 11% on Thursday, then it keeps on sliding, sliding again after the weekend. What are investors most concerned about right now?

• 3:28Gil Luria?

  Well, Oracle was put in a precarious position by OpenAI. Three months ago, OpenAI promised them, you know, we're going to spend $300 billion with you over the next five years. And at the time, that was OpenAI's biggest commitment and it looked like it was going to come to fruition. And at the time, it even looked like Oracle had won that over all the other possible providers of data center capacity. But what we found out in the subsequent couple of months is that OpenAI was making a lot of commitments to a lot of companies, $1.4 trillion in total, which at some point we all realized they didn't actually intend to live up to.

• 4:09Gil Luria?

  And, and so here's Oracle, they need to borrow a lot of money to build a lot of data centers to serve this contract. That may or may not materialize, but they have a contract. So they can't say they don't have that. So here they are, they show up on Thursday and say, we have 523 billion of remaining performance obligations. In spite of the fact that we all know that 300 billion of that is from one company that may or may not end up spending that. So Oracle is in this tough situation because they already have a leverage balance sheet. They need to borrow more money.

• 4:50Gil Luria?

  And they got on the call on Thursday and said, well, we intend to keep our investment grade rating. We intend to stay below a 3.5 debt to EBITDA ratio, which they are already close to. And we're going to have to find creative solutions to do that. We're going to have vendors own the chips. We're going to have customers own the chips. We're going to postpone leases. So they got themselves into this really uncomfortable position where it's unclear how they can proceed moving forward, building for a customer that may or not may not materialize.

• 5:26Ed Elson?

  Everything you just said there, you know, this relationship with OpenAI, the fact that it's the majority of their future revenue is coming from this company. We don't know how much we can trust OpenAI. We are also looking at the leverage that Oracle is taking on. All of that stuff sounds like stuff we kind of already knew, or at least that most people generally had an understanding of. But it looks as if something happened or something changed people's minds with this earnings report. Is there something that made people believe all that maybe more strongly or some number that particularly stood out to people?

• 6:07Gil Luria?

  A couple of things. So one, one thing is that you mentioned that they, they missed on revenue.

• 6:12Ed Elson?

  Yeah.

• 6:13Gil Luria?

  And part of the reason they missed on revenue is they didn't live up to their obligations to build the data centers at the rate they had promised. And, and that's the premise of a company like Oracle or like Corwe, these NeoClouds, the whole premise is, oh, you know, Microsoft, Amazon, Google, they can't build it fast enough. Come to us, we'll get it done. So when you have, and they, this happened to both of these companies over the last couple of weeks and show up and say, actually, I can't get it done in time, then, then why are you there? So that's part of it. And the other thing that they had this window on Thursday to own up to what happened to them with OpenAI, to own up to the fact that they'd been played and say,

• 6:55Gil Luria?

  "Look, there's 223 billion of remaining performance obligations from robust customers that we have 100% visibility into. And then there's another 300 billion that we hope to get and we're working with OpenAI, but we have to discount that somehow to be more reasonable." And instead of doing that, they got entrenched in this notion that everything's fine, we can continue to borrow money and we're going to continue to build data centers, and the customers are going to be there. Nothing to see here. I think that in itself caused unease.

• 7:29Ed Elson?

  Yeah. Just looking at their debt situation. So their long-term debt increased to $116 billion, up 44% from a year ago. But I think probably most interesting is what's happening in the credit default swap market, where the spreads on Oracle's credit default swaps have hit an all-time high. What does that tell us about Oracle's situation? What does that say about investors' concerns about Oracle right now?

• 7:58Gil Luria?

  That even if they can access the debt markets, the cost of that debt has gone up a lot since last time they raised. Plus, we've now found out, because they slipped it into the 10-Q on a Friday morning, that they have committed to 246 billion of operating leases. Above and beyond the 108 billion of debt, they now have added a colossal amount of operating. Now, mind you, that's over 15 years, but that's still a very big commitment. Add to that the activity in the CDS market, which tells us that their debt is now worth less than when they issued it.

• 8:39Ed Elson?

  Right.

• 8:39Gil Luria?

  That means that next time they have to raise debt, it's going to be harder and more expensive, which again, makes it harder to believe that they can build out the data centers at the rate that they need to, to live up to the obligations that they have made.

• 8:54Ed Elson?

  It really seems as though Oracle has become kind of the proxy for the whole AI bubble, or maybe the tracking stock for all of the concerns about AI. Everything you're describing, where you had this massive surge right after the OpenAI announcement, everyone gets very excited, went from 220 to 330 after that deal. We're back down to 185, we're down 40% from that peak, which is just extraordinary. I guess my question is, have we gone too far? I mean, if we were at 220, now down to, then yes, we had the rise, but now down to 185.

• 9:38Ed Elson?

  I mean, people are less bullish and less excited about Oracle than they were even before the OpenAI announcement. What do you make of that? Is it possible perhaps that maybe they're overselling?

• 9:52Gil Luria?

  They still have to unwind the situation. Until they get out of this predicament, the stock is going to trade at a discount to their growth rate, which is now actually accelerated, and they were actually able to deliver a nice growth and growth expectations for next year. But until they get themselves out of this predicament, which will mean renegotiating with OpenAI to something more reasonable, investors are going to be very cautious about engaging with Oracle, not to mention that, again, there's, investors feel misled. Oracle was misled by OpenAI, and then Oracle misled investors. There's always a discount when you mislead investors, and that tends to linger for more than a couple of months.

• 10:37Gil Luria?

  It could linger for a while, while investors regain their confidence in Oracle's leadership.

• 10:44Ed Elson?

  Just before we let you go, what does this say about OpenAI? I mean, OpenAI is a private company. We don't get to see the stock price moving up and down. But I mean, what we're really describing here is a crisis of faith in OpenAI, which bled into Oracle because of their relationship with each other. I mean, does this mean OpenAI, if it were trading, would be down like 50% at this point? I mean, it doesn't seem good for them.

• 11:12Gil Luria?

  Most likely, yes. And really, we're at a very critical juncture right now. What the company has said, what OpenAI has said is by the end of the year, we're going to give you this plan for how we intend to get capital to fund all these endeavors that we've been talking about. Well, we're in the middle of December. Within the next couple of weeks, we're going to find out how much OpenAI was able to raise. We know they've been on the road trying to raise capital. If they raise $5 billion or $10 billion, that's not nearly enough to pay for everything they've signed up for. But if they come up, if they show up in a couple of weeks or even as early as tomorrow and tell us, we have $100 billion of capital lined up, equity, debt, government-backed,

• 11:55Gil Luria?

  Saudis, Gulf States, SoftBank, then I think there's going to be a big relief in the entire sector. I would, I'm, I suspect based on everything we've seen, we, we may have the first scenario, not the second scenario ahead of us over the next couple of weeks.

• 12:11Ed Elson?

  All right. Gil Lurie, Head of Technology Research at DA Davidson. Gil, always good to see you.

• 12:17Gil Luria?

  Thank you.

• 12:18Ed Elson?

  Thank you.

• 12:20Ed Elson?

  After the break, Trump signs an executive order on AI. If you're enjoying the show, give Profty Markets a follow.

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  This episode is brought to you by Welch's Fruit Snacks. Back to school season can be tough on parents. But choosing a snack you and your kids can both get behind doesn't have to be. Stock up on Welch's Fruit Snacks. Made with whole fruit and now made with no artificial dyes. It's a snack kids already love and one you can feel good about giving them. Go back to school with Welch's Fruit Snacks. Now made with no artificial dyes.

• 13:32Speaker 03

  This episode is brought to you by Subaru. You know that place your mind always wanders to? The lake, the mountains, the homes of the people you love most? The completely redesigned 2026 Subaru Outback is built to help you get there. With legendary capabilities, standard symmetrical all wheel drive and the confidence to go further. The 2026 Subaru Outback. Love never looked so good. Visit Subaru.com slash Outback to learn more.

• 14:01Ed Elson?

  We're back with Prof G Markets. President Trump just signed an executive order aimed at blocking state AI laws. This year alone, every state has introduced AI legislation and 38 states have already passed 100 laws. Now, the idea is to replace this patchwork of state laws with one national framework. So what does Trump's order actually do to accomplish that? How far can it go? To answer these questions, we are speaking with Helen Toner, Executive Director at Georgetown Center for Security and Emerging Technology. Helen, thank you for joining us on Prof G Markets.

• 14:37Speaker 08

  It's a pleasure to be here.

• 14:38Ed Elson?

  So Trump signed this executive order on Thursday. Basically, the idea is we're going to regulate AI not at the state level, but from Washington. Let's just start with your initial reactions to this move.

• 14:54Speaker 08

  It's been really interesting to watch the play by play here. So this is not the first move. The Trump administration did not do this out of the blue. Earlier this year, there was an attempt to pass a preemption as part of the one big beautiful bill. So preemption being, you know, the federal government stepping in saying, we have rules. We're going to, the rules we have are going to preempt anything that the states do. So you have to follow the federal law and not state law. They attempted to do that with one big beautiful bill. The trick being that they didn't actually have anything. There were no federal rules, right? It wasn't, you know, here's the rules for how to sell such and such. And now all the state laws don't apply. Instead, it was there's no rules and also states aren't allowed to make rules.

• 15:38Speaker 08

  And that turned out to not be very popular in the big beautiful bill discussions and end up going down in a Senate vote of 99 to one. They then took another stab with the NDAA, National Defense Authorization Act. This is a must pass defense funding bill. That also failed in Congress. And while it's unusual to, you know, preempt state law with nothing to replace the state law, they did at least go through Congress in both of those attempts. They were trying to say, let's do this the way that you're supposed to do it. The federal Congress passes a law that overrides the state laws. What the executive order from last week did was really trying to do an end run around Congress instead. So it has several different sections in there, each of which is sort of on its face, something

• 16:23Speaker 08

  that the executive branch can do, that the president can, you know, require of government agencies. But that altogether, when you put them together, are trying to do something which the executive branch really can't do, which is pass a law to preempt state laws on AI. So it's really trying to intimidate states. It's trying to threaten legal action against them. But it's all going to come down to messy court fights and, you know, do they get access to federal funding and things like that.

• 16:52Ed Elson?

  You know, when I look at what he's done here, it's hard for me to think that this wasn't a result of the hundreds of millions of dollars of lobbying spend that was coming from these AI companies and the fact that David Sacks is in there, who obviously, as has been reported frequently, is an investor in many of these AI companies. But I just want to push all of that aside. Because the question of should we regulate AI at the state level or at the federal level, I think is actually a fair question.

• 17:21Speaker 08

  Absolutely.

• 17:22Ed Elson?

  What do you think? How should we be regulating AI?

• 17:25Speaker 08

  I think there is no one approach that's going to be enough to regulate AI as a whole, because AI has so many different things. So I think we need to be thinking differently about how are you regulating AI in education? How are you regulating AI in the military? How are you regulating AI in all kinds of other places? So a lot, if you look at bills that states have passed, many states have passed bills about how the state government uses AI. That seems like something that you really want to regulate at the state level, right? Alabama decides how the Alabama government should use AI and so on. Other things, like some of the more sort of national security focused issues, maybe there is actually a strong case for that being something the federal government should regulate. But then you see states in this position of, okay, these

• 18:10Speaker 08

  issues are moving fast. Companies are warning us that these threats might materialize in the next, you know, next year or in the next, you know, two to three years. And if you can, if you're looking at US Congress in Washington DC, it's pretty clear that they're very unlikely to regulate on those issues anytime soon. So what do you do with those issues where it's not actually obvious that the states are the right place to regulate it, but it is obvious that federal federally, we're not going to regulate? You know, do you then say we should tie the states' hands and they shouldn't be allowed to do anything while DC goes ahead and does nothing? And that's, I think, where you have some legitimate disagreement. Personally, I tend to think that, you know, the laboratory of democracy

• 18:49Speaker 08

  idea is valuable and is a sort of foundational principle of how the United States works. And so even in those cases, you would want to have the states able to, you know, take a stab at it.

• 19:00Ed Elson?

  So I'll read you a quote from Trump. He said, following this executive order, he said, "We have to be unified." He said, quote, "China has one vote because they have one vote, and that's President Xi." He says, "Do it," and that's the end of that. Basically saying that's a good system. I just want to get your reactions to that quote because, you know, in a lot of ways, you could argue he's right, and that is China has the ability to just make things happen. The executive order comes in, he has basically total 100% executive authority, which allows them to get stuff done quickly and pretty aggressively. We have a system of democracy which slows things down.

• 19:44Ed Elson?

  He's basically saying he doesn't like that system.

• 19:49Ed Elson?

  What are your reactions to that quote?

• 19:52Speaker 08

  I mean, I have to prevent myself from getting sidetracked. I'm somewhat of a scholar of Chinese science and technology and their regulation. And, you know, my mind immediately goes to, well, actually, you have the cyberspace administration of China and there are kind of, you know, there's tensions with the Ministry of Science and Technology and then the companies are kind of pushing back in the, you know. So in China, I think it's not quite that simple.

• 20:10Ed Elson?

  Fair enough.

• 20:11Speaker 08

  But of course, it is an authoritarian system and Xi Jinping does wield an enormous amount of power. So, point taken. Yeah, I mean, I think it's, it's just fascinating to see this from the leader of the party that for so long has protected states' rights and has understood the importance of that and has fought for it in so many other settings. And I mean, you are seeing plenty of Republicans reacting to both the, you know, the two initial pushes in Congress to preempt state AI laws and also this executive order. They are pushing back on it. They are defending states' rights. But of course, this, the CEO is now, has now gone through and the federal government is going to, it's going to move to, to execute on it. So it's not clear to me what Republicans in Congress, you know, can do about that at this point.

• 20:57Ed Elson?

  Just before we let you go here, I mean, the, the politics of AI, this is increasingly becoming a political issue. How we regulate AI, who stands to benefit from AI, et cetera. And what we continually see in, in the data and the polling is that Americans do not like AI, increasingly so. And so it does seem striking that Trump, who Does present himself as something of a populist. He wants to go with whatever the most popular answer is, is seemingly taking the other side of this. He seems to be siding with Silicon Valley in a lot of ways. And he wants to let AI run kind

• 21:42Ed Elson?

  of unregulated. I'm just interested to get your reactions on how this might play out over the next year or so. And does this executive order basically just mean he's siding with the tech bros? And how will the nation react to that?

• 21:59Speaker 08

  I think it's the right question. I think it's really striking at whatever polling you look at, how negative public sentiment about AI is. In some ways, I think too negative. You know, people are very negative on self-driving cars, for example, which I think are an incredible technology when you look at the safety data and how many lives from traffic deaths could be saved.

• 22:16Ed Elson?

  Yeah.

• 22:16Speaker 08

  But I think the tech companies really need to get realistic with themselves about where the public is at on this technology. And how do you, you know, I see tremendous potential in AI. The tech companies see it too. How do you start to deliver on that and show people a positive vision? I think banning state legislatures from creating any rules or, you know, putting any safety guardrails on is not how you create that confidence. So I definitely think there's a chance that we'll see significant backlash to AI over the next few years. And this certainly isn't going to help prevent that.

• 22:48Ed Elson?

  Helen Toner, Executive Director at Georgetown Center for Security and Emerging Technology. Helen, thank you very much for joining us. Appreciate your time.

• 22:55Speaker 08

  Thanks, Ben.

• 23:00Ed Elson?

  Before we end, we wanted to give you a quick update on a stock that we highlighted a couple of months ago. You might remember the company Fermi, which is an AI data center company that IPO'd in October at $19 billion. And you also might remember what we said about Fermi. We said that it was a, quote, "shitshow of a company." We pointed out that it would likely be the, quote, "worst IPO of the year." And we said that ultimately the stock would come crashing down.

• 23:33Ed Elson?

  This is not going to end well, and I will lock that prediction in right now. Ultimately, as we have seen time after time, gravity will hit. Gravity must hit, and this thing will have to come down. Well, here is our update. The crash came sooner than we thought. As of today, Fermi's stock is down almost 75% in just a couple of months since it went public. The company is now worth around $5.5 billion. And the reason the stock collapsed is really because of what we said, and that is the revenue that it had promised is not really showing up. More specifically, last week, one of their first customers, a company that had planned

• 24:15Ed Elson?

  to rent compute from Fermi for $150 million, that customer pulled out of their purchase agreement. Supposedly, there was some disagreement or a fight over the terms, and it led to just a termination of the entire relationship. Now, to be fair to Fermi, $150 million actually isn't all that much. I mean, they burned about $350 million last quarter alone. They would argue that they're, you know, thinking bigger than these numbers. The problem isn't the number, though. The problem is what it says. It's the fact that one of the only contracts for a company that hasn't proven itself in

• 24:56Ed Elson?

  any capacity, the fact that that has fallen through just a few months after they debuted, that is a sign. And it is a sign, as we proposed on the show, that perhaps these guys don't really know what they're doing. Perhaps they saw this buzz around AI and data centers and nuclear, and they went out, they built a fancy deck, they made some spreadsheets. Rick Perry came along and they raised a bunch of money. But that tells you nothing about their ability to actually execute and generate business, to actually turn these promises into reality. And what we know about this company is that they haven't executed anything. They haven't built anything. They haven't signed a single tenant. They have no profits.

• 25:41Ed Elson?

  And most importantly, as we highlighted, they still have no revenue. So it appears that Wall Street is beginning to come around on these issues. The stock's down nearly 75%. We predicted this would be something of a disaster. If you want our full analysis, I would encourage you to go check out our episode from October 1st, where we lay out all of the issues with the company. But it does appear that the disaster is now playing out. The only wrinkle, it happened a lot sooner than we thought.

• 26:15Ed Elson?

  Okay, that's it for today. This episode was produced by Claire Miller, edited by Joel Patterson, and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our research team is Dan Shalan, Isabella Kinsel, Chris No Donahue, and Mia Silverio. And our technical director is Drew Burrows. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.