Oracle’s aggressive AI-driven data center build-out has pushed its free cash flow from a modest deficit of $2 billion in the quarter ended August 31 to a staggering $10 billion shortfall in the quarter ended November 30, creating structural financial pressure that could translate into higher subscription costs and stricter contract terms for customers, analysts say.

“Oracle customers face a clear and escalating risk of price increases because the company has entered a capital cycle where spending has significantly outpaced monetization,” said Sanchit Vir Gogia, CEO of Greyhound Research.

The bigger deficit is not the product of temporary timing issues but the result of $12 billion of capital expenditure on data centers, GPU superclusters, sovereign cloud regions, specialized networking, and high-density cooling infrastructure, Gogia added.

However, Oracle co-CEOs Clay Magouyrk and Mike Sicilia, along with other top executives on Wednesday’s quarterly earnings call with analysts, framed the free cash flow deficit not as a structural weakness but as a strategic investment phase, one they expect to pay dividends as cloud and infrastructure revenues scale.

Oracle is not incurring expenses for new data centers until they are actually up and running, said principal financial officer Douglas Kehring, while Magouyrk sad that the time period for a data center to start generating revenue after becoming operational is “not material.”

“We’ve highly optimized a process… which means that the period of time where we’re incurring expenses without that kind of revenue and the gross margin profile that we talked about is really on the order of a couple of months… So a couple of months is not a long time,” Magouyrk said during the call.

He said he had earlier told analysts in a separate call that margins for AI workloads in these data centers would be in the 30% to 40% range over the life of a customer contract.

Kehring reassured that there would be demand for the data centers when they were completed, pointing to Oracle’s increasing remaining performance obligations, or services contracted but not yet delivered, up $68 billion on the previous quarter, saying that Oracle has been seeing unprecedented demand for AI workloads driven by the likes of Meta and Nvidia.

Rising debt and margin risks raise flags for CIOs

For analysts, though, the swelling debt load is hard to dismiss, even with Oracle’s attempts to de-risk its spend and squeeze more efficiency out of its buildouts.

Gogia sees Oracle already under pressure, with the financial ecosystem around the company pricing the risk — one of the largest debts in corporate history, crossing $100 billion even before the capex spend this quarter — evident in the rising cost of insuring the debt and the shift in credit outlook.

“The combination of heavy capex, negative free cash flow, increasing financing cost and long-dated revenue commitments forms a structural pressure that will invariably finds its way into the commercial posture of the vendor,” Gogia said, hinting at an “eventual” increase in pricing of the company’s offerings.

He was equally unconvinced by Magouyrk’s assurances about the margin profile of AI workloads as he believes that AI infrastructure, particularly GPU-heavy clusters, delivers significantly lower margins in the early years because utilisation takes time to ramp.

“These weaker early-year margins widen the gap between Oracle’s profitability model and the economic reality of its AI business. To bridge this, vendors typically turn toward subscription uplifts, stricter renewal structures, more assertive minimum consumption terms and intensified enforcement of committed volumes,” Gogia said.

HFS Research CEO Phil Fersht expects Oracle customers to have “tougher renewal discussions” if the company decides to increase pricing.

“Oracle has one of the strongest enterprise lock-in positions in the industry,” Fersht said, adding that the company offers many core products that are hard to unwind.

Make ready to leave

CIOs should start acting even before Oracle makes the changes explicit, the analysts advised.

Gogia sees developing architectural optionality as a critical step for CIOs, meaning that they should identify which Oracle workloads are genuinely immovable because of regulatory, operational or data gravity reasons, and which can be diversified or redesigned.

“It is commercial leverage. A CIO who can genuinely demonstrate the technical feasibility of reducing dependency will experience an entirely different negotiation dynamic to one whose estate is structurally trapped,” Gogia said, adding that developing optionality is not the same as migration intent.

The second safeguard, Gogia said, is locking in multi-year price protections that are explicit, measurable, and legally enforceable.

“This protection must be written at the unit level, not in blended percentage terms that can be reinterpreted during renewal, Gogia said. “Ambiguity is a risk factor that customers cannot afford.”

Fersht cautioned that CIOs should be wary of Oracle trying to bundle services such as database automation and AI, as “every large tech vendor gravitates toward higher-margin and higher-control services” as margins slip.

Gogia, too, sees this as a threat and advised CIOs to demand complete separation between AI infrastructure pricing and core cloud or database services.

Is there a silver lining?

Despite the risk of price rises, there might be a strategic upside for CIOs, especially if they can use time to their advantage.

“Oracle’s need to demonstrate utilization and revenue conversion over the next several quarters create windows of disproportionate buyer leverage,” Gogia said, adding that CIOs that come to the table now can secure far more favorable economic outcomes than those that wait until Oracle’s cash flow stabilizes and its bargaining power returns.

He also sees this as an opportunity for enterprises to reshape the governance of their Oracle estates.

“CIOs can use this moment to renegotiate the terms that have historically disadvantaged them, such as restrictive lock-in conditions, aggressive audit rights and opaque consumption commitments,” Gogia concluded.