Oracle stock has been facing challenges recently as investors express concerns about the company’s increasing debt to fund its AI buildout. However, there is hope for Oracle’s growth in the upcoming fiscal year that could address these worries.
The sentiment surrounding Oracle (NYSE: ORCL) stock has been negative in recent times. Following a significant surge in the first nine months of the year, the stock has experienced a sharp decline due to worries about the company’s heavy spending on AI infrastructure, leading to a rise in debt.
Since reaching a 52-week high on Sept. 10, Oracle stock has dropped by 42%. The release of its fiscal 2026 second-quarter results on Dec. 10 further exacerbated the sell-off. Investors have been questioning Oracle’s ability to convert its substantial backlog into revenue, especially in light of its $67 billion revenue forecast for the current fiscal year.
One of the main concerns is Oracle’s substantial borrowing to support its rapid capex expansion. The company reported a negative free cash flow of $10 billion last quarter and has been burning cash for three consecutive quarters. With capex soaring threefold year over year to $12 billion, Oracle anticipates spending $50 billion on capital expenses this year, significantly surpassing Wall Street’s $35 billion estimate.
Oracle’s debt has ballooned to $124 billion, including operating lease liabilities, representing a 39% increase from the previous year. Despite having a substantial revenue backlog, notably from its $300 billion contract with OpenAI starting in 2027, investors remain skeptical about Oracle’s high spending to meet its commitments.
Although OpenAI is projected to continue operating at a negative free cash flow over the next five years, its revenue is expected to grow significantly from $35 billion in 2026 to $213 billion in 2030. This growth is driven by its large user base of 800 million weekly users for its ChatGPT chatbot.
Furthermore, Oracle’s enterprise business has been expanding due to the productivity gains facilitated by AI. With OpenAI reporting a ninefold increase in ChatGPT Enterprise seats year over year, there is optimism that the company will meet its financial obligations to Oracle from 2027 onwards.
Market research firm IDC estimates that every dollar spent on AI services by businesses could yield $4.60 in value, indicating a potential increase in AI infrastructure funding. As a result, Oracle may successfully convert its backlog into revenue in the future.
Oracle’s remaining performance obligations (RPO) surged to $523 billion last quarter, driven by new commitments from companies like Meta Platforms and Nvidia. CEO Clay Magouyrk mentioned that Oracle currently serves over 700 AI customers on its Oracle Cloud Infrastructure platform, suggesting a strong demand for AI data center capacity.
The company has raised its fiscal 2027 revenue guidance by $4 billion to $89 billion, signaling a 33% revenue growth next year. With Oracle stock now trading at an attractive valuation and the potential for a significant increase in sales growth, investors could benefit from a potential 48% jump in the stock price over the next year and a half.
In conclusion, despite recent challenges, Oracle’s strategic investments in AI infrastructure and its strong revenue backlog position the company for future growth. By addressing investor concerns and demonstrating its ability to convert backlog into revenue, Oracle could surprise investors with improved performance in the upcoming year.
