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How did Oracle go from market darling to market disappointment in just a few months? Lee and I agreed that the speed of the reversal surprised even seasoned investors.
From AI royalty to market reality
I recalled how strong Oracle looked earlier this year. The stock surged, Larry Ellison briefly became the second-wealthiest person in the world, and Oracle stood front and center during high-profile AI announcements. For a moment, it felt like Oracle had reclaimed its place among the most powerful names in technology.
That confidence evaporated quickly. Oracle’s fiscal third quarter turned out to be its weakest since 2021, and the stock was hit hard. Nearly all of the gains driven by spring and summer optimism were wiped out.
Balance sheet anxiety
Lee pointed out that a major difference between Oracle and some of its peers is how AI spending shows up on the balance sheet. Oracle has taken on significant AI and data center exposure directly, rather than pushing much of that risk off balance sheet through third-party financing.
I added that this matters if AI investment slows or returns disappoint. In that scenario, Oracle would feel pressure not just in earnings, but also through asset write-downs and leverage concerns.
Why others are more cautious
We then asked a broader question: if AI is guaranteed to be transformative, why are some of the biggest tech companies hesitant to carry all the infrastructure risk themselves? While companies like Microsoft and Amazon already have massive cloud investments, they are not rushing to absorb unlimited additional data center exposure.
That disconnect makes investors uneasy. When companies promote AI aggressively but hesitate to fully fund it internally, markets start to question long-term returns.
A familiar lesson for investors
Lee framed Oracle’s decline as a classic cautionary tale. Strong companies can still become dangerous stocks when expectations outrun fundamentals. Investors who chased Oracle near the highs may now be waiting years to recover losses.
We closed by agreeing that Oracle will likely survive and adapt. But survival does not guarantee near-term upside. In momentum-driven markets, discipline and risk management often matter more than conviction.
Transcript:
[00:00:05] Lee Jackson: So if we go like midyear, Oracle was ridiculous. Doing ridiculously well. The stock was doing ridiculous. Lori Ellison, Larry Ellison became the, who’s their chairman, the founder, became the second wealthiest man in the world. Behind in Elon Musk, Ellison was there standing in the room with the president when they announced Stargate.
[00:00:28] Doug McIntyre: Right. CEO of a SoftBank and a couple other people. He was the king. He was one of the two or three kings. And what happened? ‘Cause Oracle isn’t there anymore.
[00:00:39] Lee Jackson: Well, and again, this wasn’t a couple of years ago, this was a couple of months ago. It was like back in this summer. Yeah. And their third, their fiscal third quarter, it’s their fiscal third quarter, ’cause they’re not on a calendar, I don’t think, what’s their worst quarter since 2021 after, like you said, and the stock just got absolutely hammered. All the gains, the big gains from all the big deals in the spring and in the summer, they’re gone. They’re absolutely eviscerated. I guess every, and, this is, again, it’s a cautionary tale for people who chase stuff like this.
[00:01:16] I mean, Oracle will always be around and Larry Ellison’s a genius and all that, and his son is in the lucky sperm club and all that stuff. But the bottom line is sometimes this gets so carried away that, people get in at the top thinking, oh, it’s gonna go higher. It’s definitely going higher.
[00:01:34] And they’re the last one in, so it’s like, it’s like rearranging the deck shares on the Titanic. It doesn’t always make sense at the end.
[00:01:42] Doug McIntyre: Well, people are also worried that Oracle’s balance sheet, there’s a lot on Oracle’s balance sheet that has to do with the future of AI.
[00:01:51] So if you look at the balance sheet and you look at the bets that they’re making on AI on that balance sheet, they’re not one of the companies that took everything and did it off balance sheet with AI. No. Some of these guys are doing no. And their nervousness that, if you have a balance sheet like that and AI goes south, you suffer.
[00:02:12] More than just on your profit and loss. Whereas some of the tech stocks, they’re letting Wall Street Finance, some of their tech centers and data centers. Absolutely. They’re Wall Street’s writing the check for those.
[00:02:24] Lee Jackson: Well, and that’s one of the issues that has so many people worried, is that this off balance sheet funding from Wall Street Banks, it wouldn’t be like a typical debt deal, it’s, they’re not typical debt deals and there’s not the kind of, thorough look through to make sure that yeah, you can pay the interest coverage on this debt and at some point, lower your debt. So, yeah, I, Oracle could get caught here.
[00:02:59] ‘Cause you’re right, if it does go south in a big way, whew. there other products are not gonna carry the load for the weight of that debt.
[00:03:08] Doug McIntyre: Well, there’s another part to this and, I think that people should ask themselves this question. Why don’t big tech companies want to carry some of the data center risk on their balance sheet?
[00:03:20] If I believed in AI, I would believe in tech. I would wanna own a piece of everything. Yeah. What you are seeing now is that the big tech companies, they’re not taking a huge amount of their own, you’re not seeing Microsoft (NASDAQ: MSFT) | MSFT Price Prediction write a check for all of its cash ’cause it thinks data centers are the wave of the future.
[00:03:39] So I ask myself, well, what’s wrong here? They keep telling me it’s gonna be great, but they’re not quite writing all the checks that they could to be in the game.
[00:03:49] Lee Jackson: Well, and and Microsoft and Amazon (NASDAQ: AMZN) have written a ton of those checks anyway for AWS and Azure. So, they probably have more on their balance sheet than most, but Oracle has got a ton on there.
[00:04:04] I mean, data center is, critical to their business to some degree, but not like, it from a retail standpoint or a management standpoint or an enterprise standpoint. As much as AWS and Azure. So it’s gonna be interesting to see what does next year bring for Oracle.
[00:04:23] I mean, the stock is down huge from the summer highs. Yeah. Well, Larry Ellison’s a smart guy and I’m sure they’ll get this sorted out, but boy, it, could be a long time for anybody that got in at the top here to get their money back. And it, sometimes it’s, good to hold, but you know, like any other thing, it’s good to put a stop-loss at a certain level and just let it click you off.
[00:04:52] Doug McIntyre: Exactly.
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