Despite posting impressive quarterly earnings, Oracle’s shares faced significant investor pressure. The focus shifted decisively from a 54% surge in earnings per share to the steep and escalating cost of capitalizing on the artificial intelligence boom.
Record Backlog Meets Massive Capital Outlays
For its fiscal second quarter of 2026, Oracle reported revenue of $16.1 billion, marking a 14% year-over-year increase but falling short of the $16.21 billion analysts had anticipated. Its cloud services segment showed particular strength, with cloud revenue jumping 34% to $8 billion. Infrastructure cloud services led this charge, exploding by 68%.
The remarkable demand is underscored by the company’s Remaining Performance Obligations—contractually committed future revenue—which soared to a record $523 billion. However, fulfilling these commitments comes at a tremendous near-term cost. The company’s free cash flow swung dramatically to negative $10 billion, driven by intensive capital expenditure on data centers.
Soaring Investment Forecast and Investor Jitters
To meet this demand, Oracle has substantially raised its capital expenditure guidance for the current fiscal year. The forecast has been increased by 43%, from $35 billion to $50 billion. A primary driver is the company’s landmark $300 billion partnership with AI research leader OpenAI, necessitating rapid infrastructure expansion.
This aggressive spending plan is raising concerns among credit investors, given Oracle’s existing debt burden of approximately $100 billion. Credit-default swap spreads have widened to five-year highs, reflecting increased perceived risk. The equity market reaction has been similarly skeptical, with at least 13 analyst firms lowering their price targets. UBS reduced its target to $325 from $380, while Citi adjusted its outlook to $370 from $375.
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Scrutiny on the OpenAI Partnership and Strategic Pivot
Reports of potential delays in data center deliveries for OpenAI, allegedly pushing completion timelines from 2027 to 2028 due to supply and labor constraints, added to market unease. Oracle has denied these speculations, asserting all project milestones are on schedule. The partnership represents a double-edged sword: a transformative growth opportunity coupled with a new dependency on a single, massive client.
In a concurrent strategic shift, Chairman Larry Ellison announced Oracle’s move toward “chip neutrality.” The company divested its stake in chip designer Ampere, realizing a pre-tax gain of $2.7 billion. The new strategy involves collaborating with all major CPU and GPU suppliers, including continued work with NVIDIA.
Oracle’s multicloud database services are experiencing hypergrowth, advancing by 817%. The company is constructing 72 data centers directly within the infrastructure of rivals AWS, Google Cloud, and Microsoft Azure, with more than half already operational.
The High Cost of Meeting AI Demand
Market experts highlight a challenging “timing mismatch” for Oracle: substantial investments are required immediately, while the corresponding revenue will be realized over a longer horizon. Analysts at BofA Securities noted the company is “paying the price for the abnormal speed at which investments are required to meet current AI demand.”
The average analyst price target now stands at $300 per share. Until Oracle can successfully convert its enormous backlog into realized profit and navigate this period of unprecedented infrastructure build-out, its stock is expected to remain volatile. The quarter illustrates the intense financial burden accompanying the race to dominate cloud-based AI services.
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