Oracle’s cloud-infrastructure business is on a tear, with revenue soaring 93 percent in its fiscal fourth quarter and a backlog of contracted but unbilled services swelling to $638 billion. Yet the stock is down 22.55 percent over the past 30 days, and a credit downgrade from S&P Global Ratings has hammered the shares to €118.66 — a mere 4.22 percent above their 52-week low of €113.86. The disconnect exposes a deepening tension between the company’s AI-driven expansion and its ability to fund it.
S&P downgraded Oracle’s long-term issuer rating one notch to “BBB-” from “BBB”, with a stable outlook, and cut its short-term rating to “A-3” from “A-2”. The move reflects what the agency calls rising business risk and weakening cash flow as the company pours money into AI cloud infrastructure. Oracle spent roughly $56 billion on capital expenditures in fiscal 2026 — a 162 percent increase from the prior year — and the free cash flow deficit for the year stood at minus $23.7 billion. Total debt reached $167.4 billion as of May 31.
The rating action came just as Oracle reported some of its strongest operating numbers in years. Total revenue rose 17 percent to $67.4 billion in fiscal 2026, and cloud infrastructure revenue alone hit $5.8 billion in the fourth quarter, up 93 percent year over year. The company’s remaining performance obligations — a measure of future revenue under contract — stand at $638 billion (or €638 billion in European reporting), and management has set an ambitious fiscal 2030 target of $166 billion in cloud infrastructure revenue.
But that growth comes at a brutal cost. S&P projects Oracle’s capital expenditures will reach $90 billion to $95 billion in fiscal 2027, with the free cash flow deficit widening to roughly minus $42 billion — nearly double earlier forecasts. The agency warns that leverage could climb into the mid-4x range by fiscal 2027, a level that strains even the new “BBB-” rating. A further downgrade to “BB+” would push Oracle below investment grade for the first time in its history.
Should investors sell immediately? Or is it worth buying Oracle?
To bridge the funding gap, Oracle is turning aggressively to equity markets. After completing a $5 billion mandatory convertible bond in February 2026, the company plans a further $20 billion capital raise this calendar year, with additional multi-billion-dollar offerings expected over the next three years. In total, Oracle aims to raise between €45 billion and €50 billion in 2026 through a mix of debt and equity. Analysts estimate the $20 billion share sale alone could dilute existing shareholders by up to 4.8 percent.
The stock’s technical picture underscores the strain. The 14-day relative strength index stands at 28.5 — another measure puts it at 31.1 — signaling deeply oversold conditions. The share price sits 28.35 percent below its 200-day moving average of €165.62 and has plunged 56.08 percent from its September 2025 all-time high of €280.70. Annualized 30-day volatility ranges between 47.95 percent and 48.25 percent, reflecting extreme uncertainty about the direction of the business.
Analyst targets paint a starkly optimistic picture in contrast. The average price target lies between €220.57 and €220.64, implying upside of nearly 80 percent from current levels. Bullish investors point to the $638 billion backlog and Oracle’s entrenched customer base, arguing that the cloud contracts will eventually convert into cash flow. The company paid a $0.50-per-share dividend on July 10, 2026 — a small signal of stability amid the turmoil.
The bearish camp counters that the downgrade is a symptom of a structural imbalance, not a one-off event. Oracle’s reliance on a handful of hyperscale customers — OpenAI alone accounts for roughly half of the company’s remaining performance obligations — magnifies the risk if the AI sector stumbles toward profitability. Meanwhile, the cash flow deficit is on track to deepen before the revenue from those contracts materializes. The next quarterly results will offer a critical test of whether the spending trajectory more closely matches S&P’s cautious scenario or the optimists’ view of a backlog-driven turnaround.
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