To put it mildly, 2026 has not been a good year for Big Software so far. Even the giants in the industry have taken serious hits to their stock prices. One stark example of this is Oracle's (ORCL 3.75%) near-21% year-to-date decline.
The rout is due largely to investor fears that tech companies identified with legacy solutions -- like Oracle, with its databases -- will be swept up in a great wave of disruption from artificial intelligence (AI) models that can do their work better, cheaper, and quicker. Yet Oracle is actually pivoting toward an AI-heavy business model. So does the sell-off make the best bargain AI stock these days?
Oracle of the future
Oracle's big gamble is that it can transition from its traditional wheelhouse of database and software-as-a-service (SaaS) solutions into a massive AI infrastructure hyperscaler (i.e., operator of large-scale data centers). In short, it aims to be a major -- if not the major -- landlord in the AI revolution.
Image source: Getty Images.
Speaking of AI, Oracle also wants to become a prominent vendor in the space. It envisions developing industry-specific AI "agents," i.e., next-generation models that can autonomously perform tasks for the client. The company also aims to become a purveyor of "sovereign AI" solutions for national governments that, instead of being housed on company servers, would rest entirely within the client's IT assets.
That next-generation technology should help Oracle trim costs, too. It has shrunk its developer teams through a series of layoffs, as it can replace humans with AI coding tools to handle much of the grunt work.
The financials behind this tectonic shift are, well, Oracle-sized. Recently, management drastically upped its estimate for its current fiscal year capital expenditures (capex) to $50 billion. For perspective, keeping the company's legacy database business alive and humming used to cost it less than $2 billion annually.
Even with the company's mountains of revenue, it will need some help reaching its suddenly more ambitious goals. In February, it announced a package of financing moves to raise greenbacks for this initiative. It issued $25 billion in debt, matched by $25 billion in secondary share issues and convertible stock.
The big ramp-up in spending isn't doing wonders for free cash flow (FCF). Very uncharacteristically for this historically cash-generating monster, Oracle's FCF was deep in the red, to the tune of almost $44 billion through the first three quarters of its current fiscal 2026.
At the end of its most recently reported (third) quarter, long-term debt had ballooned to almost $148 billion, almost 50% higher than the end-2025 tally of under $100 billion. It's also nearly double the same metric at the conclusion of fiscal 2022, which is hardly a lifetime ago.
NYSE: ORCL
Key Data Points
Stargate star
To be sure, there's plenty of demand for huge AI data centers, and Oracle's legacy business isn't (yet) being affected by that feared AI disruption. For the entirety of fiscal 2026, it's expecting revenue of $67 billion, comfortably above the nearly $57.4 billion it raked in last year. That's anticipated to leap to $90 billion in fiscal 2027 as more of those facilities come onstream.
To be sure, Oracle has customers eager to do business with it as a hyperscaler landlord. It's the AI facility provider of choice for the Stargate Project, a federal government-supported initiative to bolster U.S. leadership in AI.
One foundational deal within the project is Oracle's commitment to build out significant AI data center capacity for leading developer OpenAI, of ChatGPT fame. Oracle surprised investors in that recently reported quarter with a 325% year-over-year surge in project backlog ("remaining performance obligations," in the company's words) to a huge $553 billion; its OpenAI work is a major part of this.
So is Oracle a buy?
For years, despite its size, power, and prominence, Oracle wasn't particularly exciting as an investment. It was a reliably steady and profitable performer.
That was then, however, and this is now. The AI revolution is still in its early stages, and Oracle's play is to get a jump on the still-massive investments into infrastructure needed to advance it. Will it be dominant in a world of other data center operators and big, wealthy tech companies who might want to compete for the same prize?
Personally, I'd give it a better-than-average chance since first-mover advantage can be the deciding factor in the tech world. After all these years, company founder Larry Ellison still has a huge stake in the company, so he and his team don't really need to convince others of the plan's viability; they can simply implement it.
In short, Oracle is one of the biggest gambles in the tech world these days (and, to an extent, the entirety of corporate America). It's taken big leaps before, which is why it's such a long-time powerhouse in databases.
Given that, I'd place a bet on Oracle stock, yet I have to emphasize that the future is still up in the air. Because of that, despite my bullishness, I wouldn't say Oracle is the most undervalued AI play on the scene just now.
