Rothschild & Redburn's Alex Hazel on Oracle's Sell Rating and Capex Concerns

Oracle's Capex and Cloud Strategy

• 🎯 Alex Hazel from Rothschild and Redburn explains his sell rating on Oracle, noting the stock has fallen 35% since his September call.
• 💡 A key concern is Oracle's heavy capital expenditure (capex) plans for GPU deployments, which are estimated to generate only about 20 cents of NPV per capex dollar spent.
• ⚠️ This contrasts with hyperscalers like Amazon, Microsoft, and Google, who have sufficient operating cash flows to fund such investments, making investors more nervous about Oracle.

Oracle's Business Model and Data Centers

• ❓ Hazel questions Oracle's role, as they do not own the data centers and are allowing customers to bring their own chips, leading to uncertainty about what customers are actually paying for.
• 💰 He suggests that Oracle should focus on its core business and reduce its RPO (remaining performance obligations) and capacity, as the current strategy is a significant burden on the stock.
• 📉 The current strategy involves signing long-term data center leases (e.g., 15 years) and shorter contracts with companies like OpenAI (e.g., 5 years), requiring multiple refresh cycles to achieve positive NPV.
• 🚀 A more measured approach with less customer concentration risk and a slower pace of growth is recommended, rather than trying to catch up with hyperscalers rapidly.