Investors file a lawsuit against Oracle regarding its $300 billion agreement with OpenAI.

      The tension stemming from the significant infrastructure investment in the AI boom has escalated to legal proceedings. Investors in Oracle are suing the company, alleging that it concealed the instability of its $300 billion agreement with OpenAI.

      On Wednesday, the City of Sterling Heights Police & Fire Retirement System, a public pension fund from Michigan, initiated a class action lawsuit in a Tennessee state court, as reported by Courthouse News. The lawsuit targets Oracle's $25 billion note sale from February, naming co-founder Larry Ellison, former CEO Safra Catz, the current co-CEOs, and several underwriting banks.

      The claim is concise yet pointed. Before the sale of the notes, Oracle informed investors that its backlog of unfulfilled orders had surged. This metric, referred to as remaining performance obligations, reportedly increased from roughly $97 billion to over $523 billion within a year. According to the lawsuit, nearly all of this growth was attributable to a single client: OpenAI.

      The pension fund contends that Oracle failed to disclose that OpenAI had not met its revenue and user targets. Additionally, it claims that OpenAI’s chief financial officer had privately expressed concerns about the company's ability to fund all the cloud services it had agreed to purchase. The registration statement, the lawsuit states, “did not include such disclosures.”

      To fulfill its commitments to OpenAI, the lawsuit asserts that Oracle incurred substantial debt. The company took on tens of billions in new capital expenditures and entered into over $200 billion in long-term leases. During one earnings call, executives indicated $50 billion of capital spending planned for 2026 alone. When investors raised concerns, the lawsuit claims, management referred back to the expanding backlog.

      Subsequently, the value of the notes has dropped “significantly” from the initial offering, according to the pension fund. This decline, they argue, has adversely affected the entire group. Oracle's stock has also struggled, with Wall Street expressing concerns over the risks associated with the OpenAI deal.

      The lawsuit highlights issues related to the circular-financing risks inherent in the AI bubble. Analysts have questioned whether OpenAI can truly afford the computing resources it has committed to purchasing from the industry, with Oracle being one of the largest counterparties. Oracle has heavily borrowed to establish data centers and has made significant job cuts to finance these initiatives.

      Oracle is not the only major player facing scrutiny. Microsoft is dealing with its own shareholder lawsuit regarding AI expenditures, and critics continue to warn that there are excessive debt levels throughout the entire AI supply chain. Notably, several of the identified underwriters, such as Deutsche Bank, BNP Paribas, HSBC, and Santander, are European institutions.

      No court has yet evaluated these allegations. A complaint presents only one perspective on the matter, and Oracle has opted not to comment. However, this marks the first occasion that the uncertainties surrounding the Oracle-OpenAI agreement will be examined by a judge. The underwriting fees of $75 million from the offering might ultimately lead to a legal confrontation.