Larry Ellison’s net worth has dropped $66 billion this year to $181 billion, according to the Bloomberg Billionaire Index. The latest injury to his financials is the chance that Oracle (NASDAQ: ORCL | ORCL Price Prediction), the company he founded, will need to provide $7 billion in collateral for a data center.
This money is part of a deal with the Public Service Commission of Wisconsin, which is meant, among other things, to protect residents from electricity rate increases. Upon hearing the decision, Oracle released a statement that said, “committed to providing the financial guarantees needed to ensure there is no risk to Wisconsin ratepayers”. The fight now goes to court.
The problem comes with consequences when added to Oracle’s other credit problems, a balance sheet that probably does not support them, and modest earnings. Bloomberg reports “Investor focus should shift to any changes by Moody’s Ratings, which has a Baa2 rating on the firm with a negative outlook, as Oracle continues its spending spree, according to Morgan Stanley credit analyst Lindsay Tyler.”
The string of problems is ugly enough to take Oracle’s stock from $240 a share at the start of June to $126.
Ellison owns 41% of Oracle. Its stock is down 34% this year, while the S&P 500 is up 9%. Oracle used to be among the 20 most valuable companies in the world. Now it ranks 37th, putting it below Costco and Caterpillar.
Oracle invested $55.7 billion in AI data centers in the fiscal year that just ended. It said it would raise another $70 billion in the fiscal year that has just started. Oracle will have $100 billion in debt on its balance sheet, and that will grow.
Oracle’s planned investment appears to be close to the figures reported by other mega-AI companies like Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT). They are pulling enough cash off the balance sheet that they have, or will, turn to the debt markets.
But there is a difference between Microsoft and Oracle. Oracle had revenue of $19.2 billion in the most recently reported quarter. It had a net income of $4.3 billion. In the most recently reported quarter, Microsoft had revenue of $82.9 billion and net income of $31.8 billion. The difference is stunning.
The reason Oracle’s stock is down and Ellison’s net worth has fallen is that Wall St. does not believe Oracle can keep up with its much larger rivals. Left behind, as AI explodes, how does it prevent being left in the backwater? The answer is that it’s trapped there.
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