Shares of Oracle (ORCL 0.25%) have declined over 25% so far in 2026, as investors are growing increasingly concerned about the effect of its aggressive artificial intelligence (AI) investments on debt, cash flow, and credit risk.
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The shift in perception is reflected not just in share prices, but also in credit markets. Oracle's five-year credit default swap (CDS) spread has recently climbed to around 198 basis points, the highest level on record. This implies that bond investors are demanding higher compensation to hold Oracle's debt. With around $120 billion of Oracle's bonds included in the Bloomberg U.S. high-grade corporate bond index, Wall Street is increasingly worried about the company's high leverage level.
Multiple growth tailwinds
Oracle's growth story is still intact. The company exited the third quarter of fiscal 2026 (ending Feb. 28, 2026) with remaining performance obligations (RPO, a measure of long-term contractual commitments for cloud and AI infrastructure) of approximately $553 billion, up 325% year over year. This massive backlog provides strong multi-year revenue visibility.
NYSE: ORCL
Key Data Points
This demand is already translating into rapid growth. Oracle's cloud infrastructure (OCI) revenue surged 84% year over year, while total cloud revenues rose 44% year over year in Q3. Oracle's multi-cloud database business also grew 531% year over year in Q3, as enterprises increasingly run Oracle databases across platforms such as Microsoft's Azure, Amazon's AWS, and Alphabet's Google Cloud. By enabling customers to run Oracle databases across major cloud platforms without significant migration or data-transfer constraints, the multi-cloud strategy is helping drive increased adoption.
Oracle's AI infrastructure business is already delivering gross margins above 30%, while the multicloud database business continues to generate gross margins in the 60% to 80% range. Hence, if execution remains on track, Oracle's current investments could translate into significant long-term cash flow generation.
Risks cannot be ignored
Oracle's non-current debt has surged to roughly $124.7 billion at the end of Q3, up sharply from about $85 billion a year earlier. The company's net debt is over $95 billion, compared to around $17.3 billion in operating cash flow generated in the first nine months of fiscal 2026. Hence, there is a significant gap between cash generation and funding needs.
At the same time, Oracle plans to raise $45 billion to $50 billion in funds in 2026 from a mix of equity and debt financing to fund its AI infrastructure buildout. Accessing external financing can further increase Oracle's total debt. The surging capex has also pushed Oracle's free cash flow to a negative $24.7 billion at the end of Q3.
In this backdrop, Oracle's ability to convert its massive backlog into steady revenue and positive free cash flow will determine its future share price trajectory. Delays in data center deployment, slower customer ramp-ups, or pricing pressure could extend the gap between spending and returns.
Hence, Oracle is a high-risk, high-reward bet. If it executes well, the payoff could be substantial. But until cash flow catches up with spending, investors should expect credit risk to remain a central part of the story.
