Don here...
Brandon Chapman and Blake Young walked through Oracle's fundamentals this morning like a banker whose job depends on the loan working.
Would you lend Oracle $38 billion? That's the question he asked before diving into the balance sheet.
The company has 70% gross margins. Net margins at 21%. These numbers look phenomenal until you realize they're software licensing. Zero manufacturing costs. The business model prints money.
But Oracle's about to borrow $38 billion to build data centers for OpenAI. That's a completely different business with completely different margins.
In today's Live Trading Room session replay, you'll see:
- The free cash flow problem nobody's discussing. Oracle's operating cash flow sits at $21 billion. Their capital expenditures? $27 billion. They're spending more than they're generating. Brandon showed how CapEx increased 9x since 2022 while cash flow stayed flat.
- Why Oracle's return on equity misleads investors. ROE shows 72% which looks incredible. But return on assets tells the real story at just 7%. The 10x difference comes from leverage. Oracle's already a 10x leveraged company before adding $38 billion more debt.
- The OpenAI revenue math that doesn't add up. Oracle signed a deal for $300 billion over five years starting 2027. OpenAI generated $12 billion revenue this year. Blake ran the numbers. That's $60 billion per year Oracle expects from a company making $12 billion total.
- Brandon's exact liquidity analysis showing Oracle can't meet current obligations. Current ratio below 1.0 means available assets won't cover liabilities due within 12 months. Quick ratio confirms it. This company doesn't have cash to service existing debt before adding $38 billion.
- The AI revenue structure revealing zero real cash. Microsoft "invested" in OpenAI with Azure credits, not dollars. Core Weave raised $235 million, kept $180 million net, then gave back $230 million in platform credits. Brandon called it Bueno Bucks. It shows as revenue when used but no cash changes hands.
Brandon's banker framework matters because Wells Fargo and JP Morgan are lining up to fund this.
Oracle trades at 60x earnings. For that valuation to make sense, you need 30%+ annual growth. Analyst projections show 17% over the next five years.
The PEG ratio sits at 3.5. Anything over 2.0 signals overvaluation. Over 3.0 is extreme.
Price to book value? 30x. For a company with minimal equity after years of debt accumulation.
Blake pointed out the comparison to housing speculation. Would you lend someone $140,000 in additional debt when they already owe $72,000 with no income? That's what Oracle's asking scaled to personal finance.
The data center business requires massive infrastructure spend. Brandon built data centers firsthand. He confirmed it's expensive to build and maintain. The margins don't compare to software licensing.
Oracle's betting everything on one tenant paying $60 billion annually starting 2027. Blake noted his data center had hundreds of tenants. When they stopped paying, the debt remained but revenue disappeared.
→ Watch Brandon's complete fundamental analysis and Blake's trade setup on Oracle
Brandon structured this as credit analysis, not stock analysis. The 72% implied volatility creates opportunity for short call verticals and long-term put diagonals.
Blake's positioning February puts at 70 delta, selling front month 35 delta calls against them. The diagonal turns positive theta by December with massive downside exposure if Oracle cracks.
To your success,
Don Kaufman
Chief Market Strategist, TheoTRADE
Helping You Become a Better Trader...it’s What We Do. Experience TheoTrade® Today!
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