Jim Cramer Says “Right Now, the Biggest Ambush in This Market Comes from Oracle”

Oracle Corporation (NYSE:ORCL) is one of the stocks that was on Jim Cramer’s radar. Cramer highlighted it as a “debt-laden software company,” and commented:

“Let’s talk about what needs to happen. What could go right, a little more optimistic, to get the data center theme back on track? Right now, the biggest ambush in this market comes from Oracle, the debt-laden software company turned data center builder. They’ve got a huge client called OpenAI, the privately held company that’s been a pioneer in artificial intelligence and the bots that go with it… Oracle’s charged with building out $300 billion worth of orders for these guys… An old-fashioned tech company reinvents itself as a data center builder and crows about it. Not only does Oracle have the huge order from OpenAI, they got another $223 billion in orders from other companies.

Oracle has put the potential revenue into something called RPO, or remaining performance obligation. Most of the time, that’s almost as good as money in the bank. The OpenAI order, the revelation initially sent Oracle stock from $241 to $345 and change in a single September trading session, although it closed that day at $328…. Of course, Oracle had to raise the money first, so they hit up the bond market for $18 billion, and that’s when the problem started. Bonds can be insured with what’s known as credit default swaps, which you can actually use to bet against those bonds too, even if you don’t own them.

If you fear that Oracle might default, you buy the credit default swaps. The value of Oracle’s credit default swaps soar when the value of the bonds goes down or the perceived value. This spike was picked up by the media, and it derailed everything. Suddenly, Oracle’s grand plan seemed impossible to pull off, and we now believe that the whole data center complex may be stalled. Oracle stock went into free fall, going from $328 down to $178, where it landed two years ago, until it went up a little bit today.”

A stock market graph. Photo by energepic.com

Oracle Corporation (NYSE:ORCL) provides cloud and on-premise software, databases, and IT infrastructure to help businesses manage operations.

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Disclosure: None. This article is originally published at Insider Monkey.