alt Hacker NewsListening to Ed Zitron on various podcasts, there are several issues with Oracle stocks:
1. they are one place above junk;
2. they are being treated as effectively junk;
3. if they get classified as junk, any pension portfolios holding Oracle stock must sell as they can't hold junk stocks.
If that happens then there will be a cascade of effects. Not just in the AI/datacentre sector but elsewhere, as Larry Ellison holds a stake in Paramount/helped finance the Paramount/WB merger.
[1] https://www.youtube.com/watch?v=rHaPfdnRoZ4 -- Mostly Economics Podcast #55: Who pays when the AI bubble bursts with Ed Zitron (12:36 - 23:53)
Replies
Oracle's force majeure notice on a data centre build-out is not helping, I am sure.
(Can't remember, is it this Texas one?)
ETA: This whole Oracle bit is really the area of Zitron's predictions that is the least contentious: he called things, they are happening.
The big question is to what extent this is a harbinger of bad things. In a less crazy market where the value of enterprise-software-backed consultancy is stable or growing, you can imagine people lining up to bite off chunks from the carcass of a failed Oracle. But is the value of enterprise software even stable? Aren't many of the possible buyers also overextending themselves?
ETA 2: No, the potential force majeure is about a project in New Mexico, apparently
>3. if they get classified as junk, any pension portfolios holding Oracle stock must sell as they can't hold junk stocks.
Wouldn't hedge funds or PE recognize this arbitrage opportunity and eat this up, making this a non-issue? Vastly simplifying this: suppose "junk bond" means the chance of default is greater or equal to 10%. Of course it's bad if the risk of oracle going bankrupt edges up from 9% to 10.1%, but we shouldn't expect pandemonium from the 10% cliff edge, because there's plenty to be made by selling all the bonds that pension funds are obligated to sell, because now they have higher yields (yields move inverse to bond prices).
s/stock/bonds
Equity shares do not have ratings, bonds have ratings. Everything else is correct, if their bond ratings slip one more level they will be rated junk which may force some holders to liquidate if they’re not allowed to hold junk bonds.
You could have made a lot of money betting against Ed Zitron over the past few years. He has predicted 12 of the last 0 AI market crashes.
Of course past performance is no guarantee of future results, as they say.
The longer a clearly deteriorating credit like Oracle remains nominally investment grade, the worse the selloff eventually becomes. It’d be a false economy to try to drag it out, especially when investment grade institutions are already pricing Oracle at crossover and preparing to get the hell out of dodge.