Michael Burry shorts Oracle, citing $260 billion lease concerns

Michael Burry has renewed his bearish stance on Oracle (ORCL) stock, taking a short position around $145 per share. The investor, known for his accurate prediction of the 2008 housing crisis, is raising alarms about the company's heavy spending on artificial intelligence (AI) infrastructure. Burry's concern centers on Oracle's significant financial commitments, particularly the estimated $260 billion in future data center lease obligations, which he believes could strain the company’s finances if it fails to generate sufficient cash flow from these investments.

This warning comes at a pivotal moment for Oracle, as the tech giant is in the midst of a major transition. The company is rapidly expanding its AI business, which has been a driving force behind its recent growth. However, investors are now faced with the challenge of determining whether this growth will translate into enough cash to offset the substantial capital required. The stock has seen volatility, dropping about 25% year-to-date, with a significant plunge to around $115 in late July, indicating a shift in market sentiment regarding Oracle's AI strategy.

Despite generating a record $32 billion in operating cash flow during fiscal 2026, Oracle reported a free cash flow deficit of $23.7 billion due to soaring capital expenditures aimed at bolstering its cloud infrastructure. The company also carries approximately $129.5 billion in debt, complicating its financial picture. While Burry acknowledges that the future lease obligations are not equivalent to current debt, they represent significant financial responsibilities that could impact Oracle's ability to navigate market fluctuations.

The valuation of Oracle appears more favorable following its recent downturn, trading at 23 times trailing earnings and about 22.7 times forward earnings. This is a marked decrease from the elevated multiples investors were willing to pay during the AI hype. However, Burry argues that these earnings multiples do not provide a complete picture of Oracle's financial health, as the company shifts from traditional software to a capital-heavy cloud infrastructure model. This transformation, coupled with the risks associated with its ambitious AI investments, could have lasting implications for Oracle's stock performance.