Today (March 10), Oracle released a financial report that made Wall Street applaud collectively.

Total revenue was US$17.2 billion, a year-on-year increase of 22%. Cloud business grew 44%. The outstanding contract backlog (RPO) reached US$553 billion, a year-on-year increase of 325%.

Oracle claims that this is the first time in 15 years that its revenue and profits have increased by more than 20% at the same time, and its stock price rose by more than 10% after hours.

But in the same week, another set of news was also circulating:

• Many banks are quietly withdrawing from Oracle's data center projects;

• A private equity lender declined to finance Oracle's $10 billion data center;

• Oracle is preparing to lay off tens of thousands of employees.

These two sets of messages come from the same company and occurred in the same time period.

Oracle’s financial problems

First, free cash flow is negative, and a lot negative

Oracle's free cash flow was negative $13.18 billion over the past 12 months. Operating cash flow was positive at $23.5 billion, but capital expenditures ate up more - full-year capital expenditure guidance for this year is $50 billion, more than seven times that of two years ago.

Revenue is growing, and cash burn is also accelerating.

Second, debt continues to expand

This quarter, Oracle raised another US$30 billion through investment-grade bonds and convertible preferred stocks, and its total debt has exceeded US$100 billion.

There is an even bigger number hidden in the footnotes of the financial report: $248 billion in off-balance sheet lease commitments.

That is to say, Oracle currently owes more than 100 billion in loans, and another 248 billion is a long-term lease signed for more than ten years. This money has not been repaid, but it is already owed.

Oracle promised during the conference call that it will not issue new debt in the 2026 calendar year.

Promising in public that "no new money will be borrowed this year" - this matter contains a lot of information: creditors have become uneasy, and Oracle has to come out to appease them.

Third, the chips expired just after the data center was built!

RPO of 553 billion is the sexiest number in the entire financial report, with a year-on-year increase of 325%.

But Oracle explained the origin of these contracts during the conference call: Most of the equipment was either purchased by customers with advance payment, or the customers brought their own GPUs and handed them over to Oracle for operation.

Translated into vernacular: Oracle is increasingly playing the role of "agent operator" instead of using its own money to build data centers and then rent them out.

This business model change reduces the pressure on the balance sheet, but it also means that Oracle is no longer an asset-heavy and profitable computing power landlord, but has become a computing power property management company.

It is equivalent to the digital center version of "Wanda Business Management".

At the same time, Oracle's largest customer OpenAI has canceled its Texas data center expansion contract.

The reason is that Oracle uses Blackwell chips, and the inference performance of NVIDIA's next-generation Vera Rubin is five times that of Blackwell. OpenAI does not want to be tied to an infrastructure that is about to fall behind.

The data center construction cycle is 12 to 24 months, and the chip update cycle has been compressed to 12 months by Huang Renxun - it will become obsolete after construction. There is no simple solution to this contradiction.

This is a big pitfall for Oracle, which focuses on data center business but does not master chips.

"Replacing people with AI": Oracle's financial self-rescue strategy

How to fill the hole in the account? Oracle found an answer that is extremely politically correct at the moment: layoffs, citing AI replacement.

Oracle currently has about 162,000 employees. A TD Cowen research report estimates that Oracle will lay off 30,000 people, which can release 8 to 10 billion US dollars in free cash flow for Oracle - specifically used to fill the funding gap caused by data center expansion.

The logic is very clear: lay off workers and use the money saved to build data centers that run AI.

Tech giants are rushing to lay off employees and follow suit

Oracle is not an isolated case. Any technology company that has bet too heavily in this AI arms race and has cash flow under pressure will face the same bill.

"Replacing people with AI" provides a way out that is financially sound, narratively legal, and acceptable to shareholders.

At present, North American giants such as Amazon/Meta adopt this strategy, and the capital market welcomes it.

Someone has to pay the bill for the AI arms race in the end.

I just didn't expect that it was the laborers who were footing the bill again.