If there were any concerns about Oracle's (ORCL 2.46%) growth slowing, the company put those concerns to rest last week. The tech company reported fiscal 2026 second-quarter results that showed another double-digit jump in revenue and accelerating growth in its cloud infrastructure business. Still, the stock dropped sharply as management lifted its data-center spending plans again -- a move that added to growing concerns that the buildout for AI (artificial intelligence) data centers may be too costly to be sustainable.
Oracle shares have had it rough recently. The stock is down about 45% from its all-time high of $345.72 earlier this year, even as Oracle is emerging as a leading capacity provider for large AI workloads.
With all of this in mind, it's a good time to take a look at the stock -- especially after its big pullback.
Is this a buying opportunity?
Image source: Getty Images.
A massive backlog
Oracle's growth profile continued to improve in fiscal Q2. Revenue for the period rose 14% year over year to $16.1 billion.
Oracle's cloud business drove results. Its total cloud revenue, which includes both cloud infrastructure and cloud applications revenue, climbed 34% to $8.0 billion. And its cloud infrastructure business was the main driver of that segment. Cloud infrastructure revenue hit $4.1 billion in the second quarter, up 68% year over year. This marks an acceleration for the important segment. Oracle's cloud infrastructure revenue was $3.3 billion in fiscal Q1 -- up 54% from the year-ago period.
Of course, Oracle's real growth story remains its incredible backlog. The company's remaining performance obligations (RPOs), which represent contracted future revenue, hit $523 billion in the second quarter. While this number is already difficult to comprehend, the growth rate behind it is even more astounding. RPOs are up 438% year over year. Yes, you heard that correctly. That figure reflects long-term commitments from big customers such as Meta and Nvidia.
Soaring expenditures
The drawback to having such a wild backlog is the investment required to grow into the opportunity. Oracle spent heavily on data centers in fiscal 2025, with capital expenditures jumping to about $21.2 billion.
Spending has intensified in fiscal 2026. In fiscal Q2, Oracle generated roughly $2.1 billion of operating cash flow but spent about $12 billion on capital expenditures, leaving free cash flow around negative $10 billion for the period. A business that used to throw off cash is now consuming it as the company races to add capacity ahead of AI demand.
Management has also raised its fiscal 2026 spending plan. Earlier this year, Oracle was guiding to capital expenditures of $35 billion for the current fiscal year. But recent disclosures now point to about $50 billion as the company locks in long-term leases and builds new facilities to support surging AI demand. Management's move to boost its full-year capital expenditure guidance by $15 billion highlights how the most capital-intensive part of the AI cycle is still ahead.
A rising debt load
Meanwhile, Oracle's debt is already substantial. Its total debt stood at about $111 billion in November after a fresh $18 billion bond issue. This towers over its cash, cash equivalents, and marketable securities of close to $20 billion at the end of fiscal Q2.
For investors, that leverage amplifies both potential upside and downside outcomes for the stock. If Oracle successfully grows into its backlog, leverage like this could drive exponential growth in earnings. But if demand falters, the company could find itself in trouble.
NYSE: ORCL
Key Data Points
The stock's valuation, even after its recent decline, arguably reflects strong confidence that the company will be able to convert its RPOs into real revenue and profits over time. Trading at a price-to-earnings ratio of about 35, shares still aren't cheap. A valuation like this demands that Oracle's AI-driven cloud infrastructure investments will pay off in big profits down the road.
For now, Oracle's AI infrastructure buildout is going well -- and accelerating cloud revenue helps investors maintain confidence in the growth story. But there are risks, including the cash needed to build data centers at the pace Oracle's contracts require. And the pressure is on, as Oracle's free cash flow has already turned negative.
Investors who believe the AI boom will endure, and who are comfortable with Oracle's bet that its cloud platform will remain central to that boom, may see this 40% drawdown as a reasonable moment to build out a small position in the stock. But anyone who buys shares now should keep in mind how risky this business (and the stock) is as Oracle's debt load soars. Personally, I'll watch from the sidelines.
