Oracle is making an aggressive, capital-intensive push to become a central player in artificial intelligence infrastructure. However, its stock performance is telling a different story, lagging far behind the grand narrative as investors grow wary of the massive spending required and the timeline for returns.
Financial Results Highlight a Tension Between Promise and Performance
The company’s recent report for its second fiscal quarter of 2026, released on December 10, has intensified market concerns. While operational growth in cloud services is robust, the financial statements reveal significant strain from the expansion strategy.
Key financial data points illustrate this divide:
- Sky-High Contract Backlog: Remaining Performance Obligations (RPO) soared to $523 billion, a staggering 438% increase year-over-year. This figure includes major agreements with industry giants like Meta and Nvidia, alongside a landmark five-year, $300 billion deal with OpenAI.
- Spending Forecast Raised: Capital expenditure guidance for the current fiscal year was increased sharply from $35 billion to $50 billion.
- Cash Flow Turns Negative: The first half of the fiscal year saw operating cash outflows of approximately $20.5 billion, underscoring the capital intensity of the infrastructure build-out.
- Mounting Debt Load: Total liabilities now exceed $108 billion, compared to cash and equivalents of $19.8 billion.
- Revenue Miss: Quarterly revenue of $16.06 billion came in slightly below the analyst consensus estimate of $16.21 billion.
The contrast is stark: a historically large backlog of future business on one side, and a model consuming enormous capital in the near term, pushing free cash flow deep into negative territory on the other.
Operational Growth and Strategic Risks
From an operational standpoint, Oracle’s core AI and cloud infrastructure business is delivering strong growth. Cloud infrastructure revenue jumped 68% to $4.1 billion, while total cloud revenue grew 34% to $8 billion.
Yet, this growth is juxtaposed with weakness in the legacy software segment, where revenue declined by 3%. This reinforces a market narrative of a challenging transition, where the older, high-margin business faces pressure while the new cloud model is not yet generating sufficient surplus to offset its substantial costs.
Profitability metrics were stronger. Adjusted earnings per share came in at $2.26, well ahead of the $1.64 expectation and representing a 54% increase from the prior year. Despite this beat, investor focus remains fixed on execution risks, capital requirements, and the balance sheet rather than near-term earnings.
Should investors sell immediately? Or is it worth buying Oracle?
Valuation and Technical Picture Reflect Growing Caution
The market’s reassessment of Oracle’s risk-reward profile is evident in its valuation and stock chart. The forward price-to-earnings ratio has cooled significantly, falling from around 39 in late September to approximately 24. This decline is primarily driven by the share price drop, not lowered profit expectations.
Technically, the equity has weakened. The stock has broken below key support levels on elevated volume over several sessions, with its decline outpacing the recent correction in the Nasdaq 100 index. Shares now trade roughly 43% below their September peak and about 20% under the 50-day moving average. The weekly loss is in double digits, while the Relative Strength Index (RSI) near 70 indicates an overbought condition that is not yet extreme.
The OpenAI Partnership: A Critical Juncture
A cornerstone of Oracle’s investment thesis is its partnership with OpenAI. The company’s strategy is heavily reliant on OpenAI fulfilling its $300 billion contractual commitments and on the underlying demand for AI capacity materializing as projected.
Market doubts are emerging about whether AI customers may have overestimated their near-term infrastructure needs. If demand proves more optimistic than realistic, Oracle faces a potential mismatch of built-out capacity, high debt, and a slower conversion of its record backlog into actual revenue and cash.
Management maintains that data center construction for OpenAI is on schedule, despite reports of potential delays. The core operational challenge is now to swiftly translate the unprecedented backlog into realized sales and cash flow, all while managing a balance sheet growing increasingly tight due to heavy investment and debt.
While the current analyst consensus price target remains around $291—well above the present trading level—initial downward revisions to these targets suggest parts of the market are taking a more cautious view of near-to-medium-term profitability following the AI hype of last autumn.
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