Since hitting a 52-week low of $114 last month, Oracle (ORCL +3.10%) stock has rebounded to $147 at the time of writing but is still trading 57% below its previous high. The drop comes even as the company posts strong results and management talks up multiyear demand for its cloud services.
The stock's decline was not related to anything Oracle reported but rather reflected a broader sell-off across artificial intelligence (AI) infrastructure stocks over the last month. This signals more of a buying opportunity than a falling knife, given management's growth guidance.
Image source: The Motley Fool.
Oracle's AI and cloud businesses are booming
In Oracle's fiscal fourth quarter 2026 ending in May, total revenue rose nearly 21% year over year to $19.2 billion. Much of that growth is coming from demand for AI tools -- including agentic AI -- within its cloud business. This is reflected in surging demand for cloud infrastructure services, with revenue jumping 93% over the year-ago quarter.
Oracle also has an enormous backlog. Remaining performance obligations surged 363% from the year-ago period to $638 billion. That provides more visibility into future growth: 12% of the backlog is expected to be fulfilled in the next 12 months, with another 34% delivered in the next 13 through 36 months.
Oracle's cloud infrastructure (OCI) business generated $5.8 billion in revenue last quarter, but management sees far more runway ahead. Speaking about the broader AI infrastructure opportunity, CEO Clayton Magouyrk said, "Everything we see shows this market size is trillions of dollars per year."
OCI's momentum suggests it is on a massive growth trajectory, and management says it will be "extremely profitable." The catch is the cost to build the AI infrastructure -- especially data centers -- needed to fulfill such a large backlog.
NYSE: ORCL
Key Data Points
A key risk is ballooning debt
For fiscal 2027, Oracle's guidance calls for 34% revenue growth in constant currency and adjusted earnings per share of $8.05. That puts the stock at roughly 18 times forward earnings, even as analysts expect profits to grow about 28% annually over the next several years.
But investors are fixated on the price tag of that growth. Oracle expects to spend $70 billion on capital expenditures in fiscal 2027. Even with operating cash flow hitting $32 billion in fiscal 2026 (up 54% year over year), rising capital spending pushed free cash flow into negative territory.
There's balance-sheet risk, too. Oracle ended the fiscal year with $164 billion in total debt, and its debt-to-equity ratio sits around 3.9 -- meaning the company carries far more debt than shareholders' equity.
Oracle's momentum and valuation look appealing, but the stock is essentially a leveraged bet on the AI boom -- not a low-risk investment. If demand for AI cools, shares could fall further.
Still, Oracle is investing to deliver a meaningful share of its contracted backlog, which could translate into much higher revenue and earnings in the coming years. For long-term investors, I think Oracle's growth prospects and valuation make it worth considering. If AI demand remains hot, the stock offers significant upside from here. Investors just need to size their position to account for the risk that demand for Oracle's cloud services starts to slow, pressuring the stock.
