Construction lending has come into the spotlight on Wall Street thanks to tech giant Oracle’s (ORCL) new role as one of OpenAI’s (PC:OPAIQ) main cloud partners. As a result, this partnership has led to a wave of borrowing ($65 billion this year alone) in order to build data centers that support Oracle’s massive $300 billion cloud contract with OpenAI. However, this growth is starting to make lenders worry that they may be concentrating too much financial risk in one company, according to The Information.
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The main issue is Oracle’s weaker credit rating compared to larger cloud providers and its deep reliance on OpenAI, a company expected to keep losing money through 2029. Therefore, lenders fear that they’re becoming overly exposed, especially since Oracle’s total debt is projected to nearly triple to $290 billion by 2028. And while lenders are still funding projects, especially those backed by major tech firms, rising interest rates are making borrowing more expensive.
This is hitting companies like CoreWeave (CRWV) particularly hard after a recent revenue downgrade. In addition, these worries are now rippling through credit markets. In fact, the cost of insurance that protects against Oracle defaulting on its debt has climbed to its highest level since 2022. Fitch Ratings also issued a warning about the growing risk to bondholders tied to AI-focused cloud deals. Nevertheless, Oracle says that it isn’t concerned, thanks to OpenAI’s fast growth.
Is ORCL Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on ORCL stock based on 25 Buys, 11 Holds, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average ORCL price target of $354.27 per share implies 83.2% upside potential.
