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COLLUSION: THE NEW CROWED TRADE!…

On Wall Street, some subscribe to the adage that it’s not what I did, it’s what you can prove I did.

Which places you smack in the middle of the rabbit hole, asking the question, Do collision, corruption,  and manipulation exist on Wall Street? If so, how deep does this rabbit hole run?

Wall Street reminds me of a high-stakes poker game where people talk a big game, act friendly when in fact they are in a den of thieves that will cut your throat and leave you for dead in an alley over the potential to make an enormous profit.

And while most are familiar with the Bernie Madoff’s and the scandalous Ponzi schemes and Wall Street's multitudes of insider trading, it’s about the manipulation that takes place in plain sight.

There is no big secret that Wall Street insiders collude; the question is when, not if.

Let me start by saying that hedge fund managers and institutional traders are not your friends.

In 2009, the Galleon Management LP, a multi-billion-dollar hedge fund in New York, was founded by Raj Rajaratnam.

It was involved in an insider case where Rajaratnam, along with others, was charged by the SEC and the Department of Justice with a widespread and repeated insider trading scheme involving material nonpublic information from multiple sources.

Now here is where we take the candy away from the baby and cancel Christmas by telling the kiddies Santa Claus is a fraud and he doesn’t exist.

Just when you thought you were given your dollars a chance to grow in the free markets, the game was actually being rigged.

Insiders, including high-ranking corporate executives and consultants from major companies like Intel, Google, Hilton Hotels, McKinsey, IBM, and others, leaked confidential, market-moving information.

So, not only were the hedge fund managers competing with an edge, but some of your most well-known companies' executives were colluding to give an unfair advantage to the Wall Street elite.

Rajaratnam and his associates received inside information related to earnings, takeovers, and material contracts. The insider tips came through intermediaries, such as company executives, consultants, and analysts who breached their fiduciary duties.

This information was used to trade stocks before public announcements, allowing Galleon to generate over $25 million in illicit profits.

For example, a Polycom executive leaked quarterly earnings; a Moody’s analyst provided details about the Hilton takeover; a Market Street Partners employee leaked Google’s earnings; and IBM and Sun Microsystems executives divulged sensitive information.

Rajaratnam directly traded based on this confidential data or passed information to others at Galleon for trading. The SEC filed a complaint seeking permanent injunctions, disgorgement of ill-gotten gains, and civil penalties.

Rajaratnam was arrested in 2009, tried, and found guilty in 2011 on 14 counts of conspiracy and securities fraud. He was sentenced to 11 years in prison, ordered to pay over $53 million in forfeiture, and a $10 million fine.

Other insiders, including former McKinsey director Anil Kumar and Intel managing director Rajiv Goel, were also charged and convicted

And then there was NASDAQ Market-Makers Antitrust Litigation (1996): Wall Street traders conspired to fix spreads and prices, resulting in a massive class-action antitrust case.

The case centered on market-makers operating on Nasdaq, a computerized securities quotation system.

Plaintiffs were buyers and sellers of securities who alleged that these Nasdaq market-makers violated antitrust laws by colluding to fix bid-ask spreads and maintain artificially high transaction costs

 Market-makers allegedly conspired to:

• Set the minimum bid-ask spread at a fixed width (typically a quarter dollar per share when it should have been narrower).

• Agreed not to compete by “breaking the spread” (i.e., by quoting better prices) to protect inflated profits.

• And pressure any market-makers who attempted to undercut the spread.

This conspiracy effectively increased trading costs and reduced market efficiency for investors. The Department of Justice (DOJ) filed a civil antitrust case in July 1996 against 23 top Nasdaq market-makers under Section 1 of the Sherman Act for price-fixing.

Over 30 lawsuits were consolidated into multidistrict litigation (MDL 1023) before the Southern District of New York. The SEC simultaneously investigated and filed related actions. Extensive discovery revealed audio tapes and documents confirming collusion.

The defendants reached settlements totaling over $1 billion, one of the largest antitrust settlements in U.S. history.

So basically, a slap on the wrist for making hundreds of millions.

Year to date, there were approximately 6 cases of insider trading.

In fiscal year 2024, the SEC brought and/or settled 35 insider trading actions, which was a slight increase over the 32 insider trading actions in the prior year (2023).

Here, the point is that at any given moment, Wall Street will show up to collectively make a profit, which brings me to my last point.

If Wall Street can get away with it, they will.

Have you ever wondered why certain stocks run with no rhyme or reason? Or very liquid companies we all know, like Oracle, jumping 36% in one day?

This reeks of the same collusion. Why? Because no one would ever question the name, plus the catalyst of their 456 billion backlog potential provides cover fire along with the AI narrative for a huge run-up without a single question being asked.

Now I am not saying Oracle was the victim of insider trading or collusion, but it’s not uncommon for the street to slap lipstick on a pig if they can make a tidy profit.

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POTENTIAL: WALL STREET’S NEW CANDY!…

Wall Street is the only place where a loss can be perceived as a win, and a win can be perceived as a loss.

Oracle missed on both the top and bottom lines, with revenue coming in slightly lighter than the expected $ 14.39 billion, actually reporting $ 14.1 billion. They are also light on their earnings per share by 1 penny at $1.47, missing the street's estimates of $1.48.

And while the numbers weren’t life-changing, what Oracle said next caught the street by surprise.

Oracle’s remaining performance obligations (RPO) reached approximately $455 billion as of the end of the first quarter of fiscal year 2026.

Of which OpenAI represents 300 billion of the total and the caveat is that when it comes to compute power Microsoft has first right of refusal but none the less this represented a staggering 359% increase year over year.

The large RPO figure reflects booked revenue that has yet to be recognized, signaling strong future revenue visibility, which sent the stock up 36% the day after reporting earnings.

Now, the operative words here are “Potential” because although they have a huge backlog, the revenue needs to be recognized.

This huge increase is driven largely by multi-billion-dollar contracts with a few major clients, strong demand for cloud infrastructure and AI-related services, and expanding partnerships with major hyperscalers, like Amazon, Google, and Microsoft.

The blockbuster news was that they signed a massive contract reportedly worth $300 billion over five years, starting in 2027, with OpenAI but can they deliver?

This deal is for OpenAI to purchase cloud computing power from Oracle, including infrastructure for AI development and large-scale data centers, as part of the broader “Project Stargate” initiative.

And while this is fantastic news, the fact remains that we are working on purely the potential of future revenue that can 5X or more their business. With a contract that involves 4.5 gigawatts of new data center capacity and is considered one of the largest cloud agreements ever made.

The current state of their revenues was 14.9 billion, with only 12 % year-over-year growth.

They raised their revenue guidance by 1% from 15% to a whopping 16% (Sarcasm).

This growth is largely driven by strong demand for cloud services and license support, with cloud revenue increasing by 28% in the quarter.

Specifically, Oracle Cloud Infrastructure revenue soared 55% year over year, while cloud application revenue grew 11%.

Oracle is indeed an old general that’s transforming itself into an AI company. But is the street giving too much future credit? At the same time, is it fair to judge the company based on its past?

If you look at their revenue over the last 10 years, it appears to be a welcome change. But can an old dog do a new trick?

Over the last 10 years, Oracle’s revenue has grown modestly from about $37 billion in fiscal year 2016 to approximately $57.4 billion in fiscal year 2025. This represents a compound annual growth rate (CAGR) of roughly 4.8% annually over the decade.

Yearly revenue highlights:

• 2016: About $37.05 billion

• 2017 37.73 billion

• 2018 39.8 billion

• 2019 39.5 billion

• 2020: About $39.07 billion

• 2021 40.48 billion

• 2022 42.4 billion

• 2023: About $49.95 billion

• 2024: About $52.96 billion

• 2025: About $57.40 billion

• Fiscal 2026 projections 67 billion

With numbers like these you can see why the street is excited for the “Potential” of such high future growth expectations.

Oracle Cloud Infrastructure (OCI) revenue is forecasted to grow 77% in fiscal 2026 to $18 billion, with projections to reach $32 billion in 2027, $73 billion in 2028, $114 billion in 2029, and $144 billion by 2030.

Now this is historic, keeping in mind that Oracle’s Cloud Infrastructure revenue for fiscal year 2025 was only approximately $10 billion.

There are definitely more pros than cons.

But was it worth a 36% one-day move in the stock?

Based on revenue that will only grow approximately 16% and a pipeline of business that will take years to come to fruition, now the potential is that Oracle could grow its 2027 revenue to 85 to 90 billion, which would be a 26.8% to 34.3% spike in revenue growth, the highest in 10 years.

And with 70% gross margins, the excitement is plausible, but they were cashflow negative in the quarter, and they are spending considerably on data center expenditures which is making them cash flow negative (21.2 billion in Capex in the quarter).

At the end of the quarter (Q2 fiscal 2025), Oracle had approximately $10.94 billion in cash and cash equivalents. This marked a slight increase from about $10.45 billion at the beginning of the quarter

These numbers aren’t jumping out of the gym, just the “Potential” which speaks to the way Wall Street views the company’s potential growth. Wall Street chooses who it wants to give credit in the future versus who it wants to ignore.

On the conference call, you heard the same thing NVDA’s Jensen was saying. We are transitioning from training large language models to inference and reasoning models.

This, without a doubt, is the future. But when Jensen says hyperscalers will be spending 600 billion a year, of which they will get 25 cents to 35 cents of each year, it falls on deaf ears, ironically, when they have gone from $16 billion to $130 billion in less than 5 years and are on target to do $200 billion in revenue this fiscal year.

• 2025 130 billion

• 2024 60.92 billion

• 2023 26.97 billion

• 2022 26. 91 billion

• 2021 16.68 billion

This sounds like a bird in the hand if you’re asking, but again, Wall Street chooses its champions, and sometimes it’s more about what they can get away with versus what you can prove.

And while I understand the Potential of competition in terms of NVDA’s chip dominance, even Oracle is investing 40 billion dollars in NVDA’s GPUs.

I guess NVDA is a victim of its success, and Oracle has been an anemic grower for so long, perhaps it makes sense to give them a little credit for the pivot.

But there is a big difference between the train and the train tracks.

In the meantime, I will invest in the future that’s been proven, not potential, even if I’m wrong, I’m right.

It's kind of hard losing money on a company growing over 40% for the next 5 years, and that’s my idea of “potential.”

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Kevin Davis Founder of Investment Dojo and Author of The C.R.E.A.M. Report