Oracle stock will decline further; high debt costs and negative free cash flow make financing AI projects unprofitable despite large backlog.

This is how Oracle's stock has performed over the past year. The stock has fallen by 53%, and I believe there will be further declines in the future. The main reason for this is that the improvement in the company's financial situation is, in some respects, nothing but an illusion.

Looking at its revenues and operating profits, which are figures for the last 12 months, some might think that Oracle is performing well, that the company is currently growing, and that its operating profits are improving.

But the real reason is that the company is a major contributor to the development of artificial intelligence, and it is investing its capital. In 2024, capital expenditures reached approximately $8 billion annually, an increase of nearly 10 times.

This also means that the company has shifted to negative free cash flow. It is worth noting that capital expenditures are not included in the income statement until these assets have actually been used.

For example, if you build a data center at a cost of $10 billion, and it takes two years to build, these assets accumulate on the balance sheet. This figure does not actually appear in the income statement, so we do not see real profitability yet.

But I want you to focus on this particular number: negative free cash flow of $28 billion. This is over the past twelve months. Let's take a look at the annual figures to illustrate future expectations.

The market expects free cash flow to remain negative over the next two years.

This is extremely important because Oracle already has debts of nearly $120 billion. Therefore, the company will either have to increase its debt or sell more shares. It has to finance these projects in one way or another, as the operating cash flow is not enough to finance them.

Therefore, these funds must be raised either by selling more shares or by borrowing. Herein lies the fundamental problem, which will be repeated throughout this video: the cost of debt is constantly increasing.

It's not just about rising interest rates; everyone will face this problem as well. This also applies to Oracle's own debt, which is becoming increasingly expensive. Credit default swaps are also becoming more expensive.

But this number here, and this graph, shows you the trend. In February of this year, they were able to sell the debt on the market at an interest rate of 5.7%. Now, the interest rate on a 10-year loan is around 7.3% and it is increasing.

Therefore, as the cost of debt rises, financing these projects becomes more difficult and less profitable. When delays occur, the start date for generating revenue from these projects is delayed.

For this reason, as with Project Jupiter, which made headlines last week when Oracle invoked the force majeure clause. This is not normal in the context of business. This means there are real problems with this project.

It is not being built at the required speed, and the returns are delayed.

Now, the costs of debt are rising. All of this creates a downward spiral for Oracle. Oracle's real problem is that it has $664 billion in outstanding performance obligations. They expect this in future revenues, which the market considered a positive sign.

But if they are unable to finance and build these projects profitably, it will pose a real challenge for the company in the long run. This means that remaining performance commitments are not necessarily a positive indicator, but will actually be a hindrance to them in the long run.

Therefore, the risks facing Oracle are greater than you might imagine, due to the high cost of borrowing, declining market confidence in the company, and the difficulty of implementing these projects.

Among the companies that appear to be overvalued in this context are Oracle, Korwef, Micron, Amazon, and Tesla. I believe all these stocks are