The Curious Case of Oracle Stock: The Better the Business Gets, the More Investors Worry

Oracle (ORCL) is being punished for the one thing that is supposed to make a company great: too much demand. ORCL stock has been hammered this year, falling roughly 26% as investors continue to grow uneasy about how the company is paying for its huge push into artificial intelligence (AI).

What makes this unusual is that the business itself has never looked stronger. Oracle is sitting on a record pile of future orders, so customers clearly want what the company has to offer. The concern is whether Oracle can actually build what it is offering. To build the data centers behind its AI cloud, Oracle is burning through cash faster than it earns it, and borrowing heavily to cover the rest. Total debt has increased to more than $167 billion, and the firm still plans to raise billions more. 

Oracle has an extraordinary backlog of roughly $638 billion, which should normally reassure investors. But that money arrives later, while the debt and the building costs are piling up right now. Moreover, more than half of that backlog rests on a single customer, OpenAI, a company that's still burning cash and is years away from steady profits. If OpenAI stumbles, a large slice of Oracle’s future revenue would go with it. 

The concern is showing up in the bond market. According to Bloomberg, the cost to insure Oracle’s debt against the risk of default has climbed to its highest level in about 18 years. In plain terms, investors now see lending to Oracle as riskier than at almost any point since the 2008 financial crisis. This also falls in line with how the credit agencies feel. S&P recently cut Oracle’s rating to the lowest rung that still counts as safe, leaving it just one step above junk status. 

Oracle already has massive contracts to showcase its long-term potential. But until those start paying off, the market is betting that the risk outweighs the reward.

About Oracle Stock

Oracle provides information technology-related products and services to enterprises through its main business segments: Cloud and License, Hardware, and Services. It also offers database technologies such as Oracle Database and MySQL, cloud infrastructure services, artificial intelligence, machine learning, and developer tools. The company is based in Austin, Texas and was founded in 1977.

Over the last year, Oracle has fallen 44%, significantly underperforming the S&P 500’s ($SPX) gain of 21% during the same period. Similarly, on a year-to-date (YTD) basis, the stock has lagged the S&P 500’s gain of 13%. ORCL stock has been trading downward since June, hitting its 52-week low of $114.50 on July 28. Since then, the stock has had somewhat of a recovery in the past week or so. 

Oracle’s stock price has increased 12% in the past five days. However, in the past year, the stock price has been cut well over half from its 52-week high. As a result, ORCL stock is trading cheaply by its own standards, which is unusual for a company posting record growth.

The forward price-to-earnings (P/E) ratio of 22.5 times sits well below its five-year average of 32 times, while the price-to-sales (P/S) ratio sits at 6.2 times. On paper, that looks like a bargain. The EPS outlook also seems decent. After modest growth of less than 3% estimated in fiscal 2027, analysts expect growth to surge to 36% in fiscal 2028. The timeline for the accelerated growth falls in line with Oracle’s AI contracts expected to start converting to revenue.

So, why are the investors still reluctant? The answer is the balance sheet. Oracle holds just $32 billion in cash against $167 billion in debt, leaving it in a roughly $135 billion net-debt position while it continues to invest heavily. The company’s debt now accounts for more than 40% of its market capitalization, and this number could likely grow in the near term. The question is whether Oracle can convert its enormous backlog into profit before the debt load becomes a genuine problem. If it does, today’s price may look like an opening for investors. If it stumbles, things could continue to go downhill. 

Oracle Delivers Strong Earnings 

Oracle reported its fourth-quarter fiscal 2026 earnings on June 10. The company reported revenue of $19.2 billion, up 21% year-over-year (YOY). Adjusted EPS came in at $2.11, comfortably beating the Wall Street consensus of $1.95. The company’s cloud infrastructure segment saw remarkable growth of 93%, primarily driven by demand for AI workloads and database services, while capital expenditures for the full year came to $55.7 billion. 

Going forward, Oracle expects revenue to grow 34% to $90 billion in fiscal 2027. Cloud revenue is expected to grow between 58% and 64% in Q1 2027, while non-GAAP EPS is expected to be between $1.72 and $1.76. Moreover, the company expects its net cash outlay for full-year 2027 capex to be around $70 billion. To support these investments, the firm expects to raise around $40 billion in debt and equity for fiscal 2027. 

What Do Analysts Expect for Oracle Stock?

Bank of America recently reiterated a “Buy” rating on Oracle stock and assigned a price target of $240. That target reflects 67% potential upside from current levels. In June, Guggenheim also maintained a “Buy” rating and set a $400 target, reflecting 179% potential upside from current levels. 

Based on 44 Wall Street analysts with coverage, ORCL stock holds a consensus “Strong Buy” rating. Out of those analysts, 33 have a “Strong Buy” rating, one has a “Moderate Buy," nine have a “Hold," and one has a “Strong Sell” rating. The stock has a mean price target of $252.09, which implies 76% potential upside from here.