Why Oracle Is Worrying Investors About the A.I. Boom
In today's newsletter:
Andrew here. Here’s a head-scratcher: The Fed suggested that there was only one rate cut coming next year and another for 2027, but markets initially went up. Why? We take you inside the debate in the room. And we look at why investors are spooked about Oracle’s earnings — and what that means about the A.I. boom.
Also: We’ve got a big special section in Thursday’s print and online edition highlighting last week’s DealBook Summit. I’ve written an essay about the biggest takeaway: We’re in a new era in which every major business decision now runs through 1600 Pennsylvania Avenue. Please also make sure to take a look at some of the fascinating insights from our Groundbreakers. More below.
The OpenAI question
Fears about the artificial intelligence boom have resurfaced, if Oracle’s stock price is any indication: The tech giant’s shares are down sharply in extended trading on Thursday, weighing on U.S. stock futures.
But what’s worrying investors isn’t just the swelling price tag of Oracle’s A.I. spending. It’s also the question of whether all of that investment — much of which is meant to cater to one customer, OpenAI — will deliver.
The damage: Oracle’s shares are down 13 percent in premarket activity on Thursday. Other A.I. stocks are also down in extended trading, but the hit has been uneven. CoreWeave, the cloud computing provider, is down more than 4 percent in premarket trading, while SoftBank, the Japanese tech investor betting big on A.I., fell about 7.6 percent in Tokyo.
But shares in the so-called Magnificent Seven group of tech giants, all of which have much deeper pockets and bigger businesses than Oracle, have declined by smaller percentages in premarket trading.
The fear is that Oracle’s A.I. bet will take more time and money to pay off. The company said that it now expected capital expenditures to hit about $50 billion through May 2026, up $15 billion from a forecast in September, and it burned through $10 billion in cash during the most recent quarter. At the same time, revenue and profits for the period missed analyst expectations.
That heavy investment is weighing on Oracle, given that it already has about $106 billion in debt — and Morgan Stanley analysts predict that will swell to $290 billion by 2028. The cost of protecting the company’s debt against default, via instruments known as credit default swaps, is now about 1.25 percent, up about threefold since September.
OpenAI looms large. The company kicked off the A.I. frenzy and has led the industry for much of the past three years. But tech analysts and investors are increasingly worried about its trillion-dollar spending plans and whether wealthier rivals like Google are catching up.
Because OpenAI is privately held — at least for now — investors have had to take out their worries on the company’s publicly traded business partners, including both Oracle and SoftBank.
OpenAI still accounts for a majority of the $523 billion in contracted revenue that Oracle hasn’t yet recognized. (Oracle executives noted on Wednesday that their company had also struck partnerships with Meta and Nvidia, and that other customers could use the capacity built for OpenAI.)
It’s a reminder that the A.I. ecosystem is increasingly interconnected, with potentially big consequences if any major hub, like OpenAI, falters.
HERE’S WHAT’S HAPPENING
Oil prices whipsaw as U.S.-Venezuela tensions rise. Brent crude, the global benchmark, rose after President Trump announced that the U.S. military had seized an oil tanker off the Venezuelan coast. But prices then dropped as Trump pushed Ukraine to accept a U.S. plan to end the war, which would potentially bring Russian oil onto the market.
Trump insists that CNN be a factor in any deal for Warner Bros. Discovery. The president said on Wednesday that it was “imperative” that the news network be sold or that its leadership replaced as part of any transaction involving Warner Bros., its parent company. That could hurt Netflix, which wants to buy much of the company but not its cable TV assets. David Ellison, the C.E.O. of Paramount, which has bid for all of Warner Bros. Discovery, has reportedly told the White House he would make major changes at CNN.
DeepSeek, a Chinese company, is said to be using Nvidia chips that aren’t supposed to be in China. A highly lauded artificial intelligence start-up, it has been covertly training its new models on Nvidia Blackwell chips, which Washington has prohibited from being sold to Chinese companies, The Information reports. (The arrangement involved illegal smuggling of the Blackwells to China via Asian data centers, according to the publication.) Nvidia denied any knowledge of “phantom data centers” reselling its chips. The report comes as China debates whether to buy the older Nvidia H200 chips that the Trump administration recently approved for export.
Is the Fed done cutting?
A quarter-point rate cut, an upbeat economic outlook and a promise to splurge on Treasury bills: Investors got almost everything on their Fed wish list on Wednesday.
Yet friction between the central bank and the Trump administration persists. Potentially aggravating matters was Jay Powell, the Fed chair, signaling that rates could stay put for a while.
The Fed is now “well positioned to wait to see how the economy evolves,” Powell said at the news conference. That had Wall Street speculating on Thursday that investors just saw the last cut of the Powell era. (His tenure as chair ends in May.)
President Trump was not pleased. Shortly after the Fed decision, Trump called Powell a “dead head” — incidentally, Powell is a Grateful Dead fan — and “a stiff,” and said that the rate reduction could have been “at least doubled.”
What the Fed did:
It voted to lower the benchmark lending rate to a new range of 3.5 percent to 3.75 percent.
Starting Friday, it will buy $40 billion worth of Treasury bills each month to add liquidity to the market. It’s the first sustained increase in the Fed’s balance sheet in three years, according to Deutsche Bank, and the announcement spurred a bond rally.
What they couldn’t fully agree upon: how to address stubbornly high inflation and a cooling labor market. The central bank’s so-called dot plot revealed that some officials wanted to cut rates aggressively to bolster hiring, while others wanted to stand pat to keep inflation in check.
Just how divided is the Fed? Wednesday’s rate vote featured three dissensions, an unusually high number. Austan Goolsbee of the Chicago Fed, and Jeffrey Schmid of the Kansas City Fed wanted to hold rates steady; Stephen Miran, a Fed governor and onetime Trump economic adviser, pushed for a jumbo-size half-point reduction.
According to the central bank’s latest rates forecast, many of its officials expect one cut in each of the next two years.
The next Fed chair faces a big challenge: building consensus. At Wednesday’s news conference, Powell played down a split at the central bank. But whoever succeeds him must corral dissenters, even if that person is inclined to deliver on Trump’s demand for lower rates.
Should inflation perk up again, the dissent will grow louder, Mike Reid, a senior U.S. economist at RBC Capital Markets, wrote in an investor note in Wednesday. That would most likely mean “an extended pause is the next decision for the Fed,” he added.
DealBook Quiz
This question comes from a recent Times story. Click an answer to see if you’re right. (The link will be free.)
It won’t come as a surprise to parents, but it turns out that teenagers spend vast amounts of time on social media. According to a new report from the Pew Research Center, most teenagers in the U.S. are on YouTube and TikTok every day. (Australia this week barred anyone younger than 16 from using social media.) Teenagers are talking to artificial intelligence a lot, too.
What portion of U.S. teenagers say they use an A.I. chatbot daily, according to the recent survey?
The Trump gold card takes shape
When President Trump announced a “gold card” visa program to allow foreign nationals to buy U.S. residency for a multimillion-dollar fee, he presented it as a tool to transform immigration policy while paying down the country’s debt.
Now the details are out, and those ambitions appear to have been notably scaled back.
A recap: In February, Trump proposed a gold card that could give residency to “very high-level people” who paid a fee of around $5 million, and estimated that the U.S. could raise $5 trillion by selling a million of these cards — money that he said could pay down America’s roughly $35 trillion in debt.
Card discounts: The administration has now introduced a website for applications for the program, after Trump officially created the program in September (with some tweaks to that first proposal).
Applicants must pay a nonrefundable $15,000 processing fee. If they’re successfully vetted by the Department of Homeland Security, they will then have to make a $1 million “gift” to “receive U.S. residency in record time” and become lawful permanent residents.
Companies can apply for a “corporate gold card” version, for which they would pay the $15,000 processing fee — and then $2 million per employee whom they’d like to sponsor to work in the U.S. if they pass vetting.
The site also teases an upcoming “platinum card,” which for $5 million will let foreign nationals spend up to 270 days in the U.S. without paying American taxes on overseas income.
The gold card idea has drawn plenty of questions. It was originally meant to be a modified version of the EB-5 visa program, which has been criticized as an avenue for fraud. Administration officials have suggested vetting for gold cards would be much tighter, but it’s unclear how that can be reconciled with Trump’s apparent expectations.
And the existing EB-5 program required investments meant to create jobs or financial returns, while the gold card payment to the federal government is just that. (As DealBook previously reported, loans from EB-5 investors have been crucial financing for real estate companies, including those run by members of the Trump family.)
The gold card program has also drawn criticism, including from Democrats who say that it provides a speedy pathway to visas for wealthy individuals even as the administration cracks down on immigration.
Officials have put a hold on visa applications filed by people from countries subject to the president’s travel ban. And this week, Customs and Border Protection have floated the idea of reviewing up to five years’ worth of social media history for many international tourists, which could further affect U.S. tourism.
THE SPEED READ
Deals
Reports of a SpaceX I.P.O. (and how much Elon Musk could make from it) have Wall Street buzzing about a potential record-breaking torrent of companies going public. (Bloomberg)
Nick Clegg, Meta’s former head of global affairs, is joining a British venture capital firm that also counts Yann LeCun, his former colleague and a pioneering A.I. scientist, as an adviser. (FT)
Politics, policy and regulation
Mexico approved tariffs on imports from China of up to 50 percent, aligning its tariff policy with the U.S. (NYT)
Convicted business leaders, politicians, celebrities and Jan. 6 rioters: Here’s a deep dive into the wave of pardons issued by President Trump this year. (WSJ)
Best of the rest
A new investigation highlights Jeffrey Epstein’s extensive ties with Wall Street, with bankers pitching him on deals even as new accusations about sex crimes emerged. (Bloomberg)
“How Jamie Dimon lured a Warren Buffett protégé to JPMorgan” (FT)
We’d like your feedback! Please email thoughts and suggestions to dealbook@nytimes.com.