Investors are torn between walking away from the AI trade as spending soars with little ROI to show for it, and staying in for fear of missing the next bull run.
One analyst is clear: some of the biggest AI infrastructure players won’t survive this shakeout, and Oracle is at the top of his worry list.
Matt Maley, chief market strategist at Miller Tabak, recently said in a program on CNBC that the AI infrastructure race started with five or six major players. He now expects only one or two to come out on top.
Oracle (NYSE:ORCL) sits on the losing side of that call. The analyst said on CNBC that Oracle is worried that a major customer, widely believed to be OpenAI, might walk away from some data center lease commitments. Maley points to Oracle’s own admission that its AI bet may not pay off the way management expected. In his words:
“It’s just the amazing amount of spending that they’ve put in. And when they, they themselves are the ones admitting that they may have a tough time monetizing this to the way that they had been thinking even six months ago and certainly a year ago. That does bring the situation into question.”
Worries About Oracle
Oracle has emerged as one of the biggest hyperscale cloud providers, with Oracle Cloud Infrastructure (OCI) becoming its fastest-growing segment. Recent results showed OCI revenue growing roughly 93% year over year, while remaining performance obligations (RPO) surged to about $638 billion, providing substantial revenue visibility.
But bears say Oracle is making a highly leveraged, long-duration bet on AI infrastructure that may not generate adequate returns. The company has committed to enormous capital expenditures, long-term debt and data center lease obligations extending 15 to 19 years, while some of its largest customer commitments, including major AI infrastructure contracts, run for much shorter periods. If AI demand weakens or customers reduce spending when those contracts expire, Oracle could be left with expensive assets generating insufficient returns.
Amazon Has ‘The Whole Package’ To Win
Amazon (NASDAQ:AMZN) sits on the other side. Maley on CNBC mentioned Amazon, along with Google, as one of two companies with “the whole package” to win the AI infrastructure race and ride out competitive pressure in the coming weeks. He didn’t break down Amazon’s advantages the way he did for Google’s custom chips, but he grouped it with Google as a frontrunner rather than a name at risk.
Bulls say Amazon’s AI spending is beginning to pay off as accelerating AWS growth validates years of heavy infrastructure investment. AWS revenue rose about 37% year over year in the latest quarter, with operating margins approaching 39%, while backlog rose to roughly $496 billion, providing strong revenue visibility.
