Oracle faces investor questions on OpenAI impact and shrinking profit margins

Oracle is bracing for a tense earnings day as investors raise fresh concerns over the company’s weakening profit margins and its deepening exposure to OpenAI. 

The development follows a volatile three months in which the company's shares first surged on news of a massive increase in backlog, only to tumble once it was revealed that the jump was tied to a single, highly uncertain contract with OpenAI.

Reportedly worth over $300 billion, the contract instantly raised red flags, given that OpenAI does not have the capital to fulfill such an order. 

Since that revelation, Oracle stock has fallen more than 30%, setting the stage for heightened scrutiny as the company reports its fiscal second-quarter results.

Analysts have noted that the key number to watch will be Oracle’s cloud backlog, with expectations of a modest $47 billion increase, far from the blockbuster gains triggered by the OpenAI deal. 

Investors are also keeping an eye on the company’s cloud infrastructure revenues, which have grown rapidly but at the expense of margins. 

Notably, Oracle’s adjusted operating margin has already slipped and is projected to decline again this quarter.

Meanwhile, the costly build-out of Project Stargate, part of Oracle’s partnership to support OpenAI’s future data-center needs, is reshaping the company’s finances, driving up debt and pressuring cash flow.