Oracle Corp. (NYSE:ORCL) is among the companies most vulnerable if the artificial intelligence investment boom unravels, according to venture capitalist Paul Kedrosky, who warns that four forces behind previous financial bubbles are converging.
“The people who are in the most trouble are the people who are trying to use this as a bridge to the future and my favorite example is Oracle,” he said on the Capital Thesis podcast.
Kedrosky said Oracle’s core database business is in decline, while its heavy borrowing to become an AI hyperscaler is eroding its once-strong balance sheet. Oracle’s software revenue fell 3% last quarter from a year earlier.
Four Forces Behind One Bubble
Kedrosky identified technology, real estate, loose credit and government policy as four forces behind previous financial bubbles. While earlier bubbles typically involved one or two, he said AI combines all four.
Technology companies anticipate enormous demand. Property investors see dependable data-center rents. Lenders expect attractive returns, while governments view AI investment as essential to competing with China.
“You have four people who independently think it’s rational,” Kedrosky said, arguing that those decisions collectively create a dangerously unstable system.
Kedrosky argues that the sheer number of potential failure points makes the AI boom unusually dangerous. Even if each scenario appears unlikely on its own, the chance that at least one goes wrong grows as the risks multiply.
He sees debt-market turmoil and unexpected government intervention as possible triggers, but says predicting which will strike first is a “mug’s game.”
“It will fail. It will fail catastrophically,” he predicted.
Kedrosky argues investors are assuming AI infrastructure will remain valuable after a crash, just as railroads and fiber-optic networks did. But unlike those assets, GPUs could become economically worthless within five to 10 years.
Why Oracle Faces Particular Risk
Oracle had $125 billion in borrowings as of Aug. 31, alongside $288 billion in additional future lease commitments, largely for data centers and not yet reflected on its balance sheet, according to its latest filing.
Those leases generally run for 15 to 19 years, while Oracle estimates its servers and networking equipment will last six years, meaning the hardware could need replacing at least twice during a single lease.
Credit markets are already showing concern. S&P downgraded Oracle’s debt to one notch above junk in July, while its 20-year bonds recently yielded 8.1%, about 2.5 percentage points above Treasuries.
However, Oracle’s cloud infrastructure revenue surged 121% from a year earlier to $7.4 billion last quarter, while its contracted backlog reached $664 billion.
On Polymarket, traders put the odds of an AI-industry downturn at 6% by December 31 and 20% by June 30, 2027, under the contract’s rules. Kedrosky gave no deadline and expects an equity rally into year-end.
Oracle shares fell 5.48% Thursday to $135.69 following reports that major customer OpenAI’s annualized revenue was closer to $50 billion than the previously reported $70 billion.
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