Oracle (ORCL +0.67%) stock tumbled a few days ago after a Wall Street Journal report claimed that its key partner, OpenAI, was missing internal targets, and that some of its management, including CFO Sarah Friar, had raised concerns about its spending. Fast forward to today, and Friar spoke to Bloomberg, claiming the company was actually outperforming expectations. That was enough to send Oracle shares up more than 7% by 12:30 p.m. today.
Why OpenAI matters to Oracle
What happens at OpenAI reads across to Oracle due to the two companies $300 billion deal, in which Oracle will build out AI infrastructure to service demand from OpenAI.
Image source: Getty Images.
Given Oracle's massive investment commitments, there's a natural concern whenever OpenAI's growth trajectory comes into question. The chart below shows the Wall Street analyst consensus, courtesy of S&P Global Market Intelligence, for Oracle's earnings before interest, taxation, depreciation, and amortization (EBITDA), capital spending commitments, and the concomitant cash burn through 2028.
Data source: S&P Global Market Intelligence of Wall Street Consensus. Chart by author.
Clearly, Oracle needs to ensure it generates EBITDA and cash to start generating FCF in 2029, and to do that, it will need OpenAI to meet its targets and, in turn, secure funding for its massive investments. It's also a matter investors in OpenAI are watching closely, not least because the AI company successfully raised $122 billion in a recent funding round.
Today was a day when the market felt better on the matter due to Friar's reassurances, and the stock rose accordingly.
