Oracle is accelerating its push into artificial intelligence, accepting near-term financial pressures as it invests billions into new data centers. This aggressive expansion has captured Wall Street’s attention, with a historic surge in its order backlog fueling fresh analyst optimism despite significant capital expenditure.
Strategic Focus on Task-Specific AI
The software giant recently unveiled a suite of 22 new services dubbed “Fusion Agentic Applications.” These specialized AI agents are designed to automate routine tasks in human resources, finance, and supply chain management. Concurrently, the launch of the “Oracle AI Database 26ai” provides businesses with a platform to scale their own AI applications using real-time data. Market observers view the company’s approach favorably, noting its emphasis on automating specific functions while keeping human oversight in the loop. This strategy is seen as mitigating potential liability concerns and issues related to data accuracy.
Unprecedented Backlog Driven by Cloud Demand
The financial impact of this technological push is clear. For the third quarter of fiscal 2026, Oracle reported a 22% revenue increase to $17.2 billion. The standout performer was cloud infrastructure, where revenue soared by 84%.
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This momentum prompted Bank of America to reinstate coverage on the stock this week with a buy rating and a $200 price target. Analyst Tal Liani cited the company’s remaining performance obligations as a primary reason. The contract backlog reached a record $553 billion—a staggering 325% increase year-over-year, propelled by massive long-term agreements for AI infrastructure.
Aggressive Spending Tempers Near-Term Cash Flow
Supporting this rapid growth requires substantial investment. Management anticipates capital expenditures will reach approximately $50 billion in the current fiscal year. As a consequence, Oracle projects negative free cash flow through 2029. Investors have shown nervousness in recent months regarding these high costs and the potential disruption to traditional software models. Since the start of the year, the stock—which closed Wednesday at €126.42—has declined by more than 24%.
The shares currently trade at about 20 times expected earnings. Despite the significant upfront costs, leadership remains committed to its targets, aiming for total revenue of $90 billion in fiscal 2027, supported by a gross margin in its AI business of 32 percent.
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