Key Points
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Oracle’s fiscal 2026 revenue increased 17%, while net income rose 37%.
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The share price has dropped 58% from its September‑2025 record high.
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A large, debt‑financed data‑center expansion underpins both the revenue growth and the market’s concerns.
Although a $400 billion company rarely sees its market value fall by more than half, Oracle (NYSE: ORCL) has done exactly that. Its shares currently trade around $144, representing a 58% decline from the $345.72 peak reached in September of the prior year, even though fiscal 2026 revenue rose 17% to roughly $67.4 billion and net income climbed 37% to about $17 billion.
What led to this decline, and does the steep drop present a buying opportunity?
A business still growing fast
Oracle’s latest results show no signs of distress. In the fiscal fourth quarter, which ended May 31 2026, revenue climbed 21% year‑over‑year to $19.2 billion. Cloud revenue surged 47% to $9.9 billion, while Oracle Cloud Infrastructure—its provision of computing capacity for AI workloads—jumped 93% to $5.8 billion, reflecting an acceleration of growth already seen earlier in the year.
Image source: Getty Images.
The backlog is striking. Oracle’s remaining performance obligations—contractual revenue not yet recognized—stood at $638 billion at year‑end, a 363% increase from the prior year and a $85 billion rise within a single quarter, driven by large AI‑capacity agreements with a few major customers.
A caveat is the limited customer base. Much of the recent surge stems from a few large AI deals in which customers either prepaid for chip purchases or provided the chips themselves. While this fuels impressive growth, it also ties Oracle’s prospects to the continued spending of a small group of major customers.
Demand is clearly strong, but the central issue is the cost of serving it.
The reason for the fear
The market’s primary concern is cost. Constructing the required capacity is extremely expensive, and Oracle is financing it through debt. Capital expenditures reached roughly $55.7 billion in fiscal 2026, and the company raised about $43 billion in debt during the year, with additional financing expected. Consequently, free cash flow has turned deeply negative as management urgently invests in concrete and chip installation before demand can be met.
That financial pressure is reflected in the stock’s decline.
Every dollar of the $638 billion backlog presumes Oracle can fund the construction, populate the data centers, and turn the contracts into profitable revenue on schedule—most of which will be realized over many years, not in the near term. Should AI computing demand weaken or the returns on this massive spending fall short, the debt will remain while the anticipated returns diminish.
Time to buy?
With a 58% decline, much of the risk is now reflected in the price. Oracle trades at roughly 25 times earnings and about 17 times projected earnings for the coming year—a valuation that remains modest given its double‑digit revenue growth and the much faster growth of its cloud‑computing segment.
Nevertheless, a lower price does not automatically make it a purchase.
The bull case is simple: if Oracle can convert its massive backlog into revenue, today’s price will appear attractive. Conversely, the bear case is evident: a debt‑laden, capital‑intensive expansion leaves limited room for error, and recent sentiment shifts highlight how quickly the market can change. In this context, Oracle’s future depends more on financing and data‑center capacity than on software sales—a markedly riskier proposition than in previous years.
Overall, the current price reflects considerable skepticism. For investors who remain confident in the AI‑cloud boom, a modest initial position could be warranted. Nevertheless, with high leverage and rapid spending, I would prefer to see Oracle generate more cash from its backlog before increasing exposure. I would start cautiously and let performance, not the discount, drive the decision.
Should you buy stock in Oracle right now?
Investors should weigh Oracle’s strong growth prospects against its heavy debt and rapid capital spending, and assess whether its long‑term AI‑driven backlog can be converted into sustainable cash flow before deciding to buy.
