Tech giant Oracle (ORCL 1.96%) has racked up remaining performance obligations, which represent future revenue expected to be generated from signed contracts, totaling $523 billion. The company added $68 billion to the backlog in the second quarter of fiscal 2026 alone, signing new deals for AI infrastructure with Meta Platforms, Nvidia, and other customers.
Oracle's deals to provide AI infrastructure require the company to build expensive data centers filled with powerful GPUs before any revenue is recognized. Oracle entered the AI boom with a debt-heavy balance sheet, and the situation is worsening as the company borrows to fuel its AI ambitions.
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Burning cash and piling up debt
For the six-month period ending Nov. 30, Oracle generated $10.2 billion in operating cash flow and used $20.5 billion for capital expenditures. That works out to a negative free cash flow of $10.3 billion. Capital spending more than tripled year-over-year during the period as Oracle plowed ahead with its capital-intensive AI strategy.
Oracle has spent years piling up debt to fund share buybacks, which raises the risk level of adding even more debt to the balance sheet. Thanks to heavy spending on AI infrastructure, Oracle ended the second quarter with about $108 billion in debt. That's up from $92.6 billion in May. The company completed an $18 billion bond sale in September.
Oracle stock was tumbling on Thursday following the release of its second-quarter report. If the company can successfully convert its AI infrastructure backlog into revenue over the next few years, its revenue growth is expected to accelerate dramatically. However, the upfront cost is enormous. Additionally, there's a risk related to OpenAI, which reportedly has a $300 billion AI infrastructure contract with Oracle. If OpenAI struggles to raise sufficient funding or generate enough revenue as competition intensifies, Oracle could be left holding the bag.
NYSE: ORCL
Key Data Points
How high will Oracle's debt go?
Analysts at KeyBanc Capital Markets estimated in September that Oracle may need to add $100 billion in debt over the next four years to fund its OpenAI contract. Oracle management addressed this concern during the earnings call, with co-CEO Clay Magouyrk saying that "based on what we see right now, we expect we will need less if not substantially less, you know, money raised than that amount."
Oracle has a few tools at its disposal, including deals where customers bring their own chips. The company could also work with private equity firms or other third parties, similar to a deal Intel struck with Brookfield Infrastructure Partners to fund its Arizona semiconductor fab. Magouyrk insisted during the earnings call that Oracle was committed to maintaining its investment-grade debt rating.
While the jury's still out on how much debt Oracle will need to fulfill its contracts, investors have been registering their opinions in recent weeks by sending the stock tumbling. Oracle's AI growth story is falling on deaf ears, and it's hard to say what it will take to shift sentiment in a positive direction.
