Oracle Stock Down 60%: Why I'm Still Not Buying
💡 Key Takeaway
Oracle's AI-driven growth is impressive, but its massive debt and negative free cash flow make the risk too high for me, even after a 60% drop.
What Happened: Oracle's AI Spending Spree Comes at a Cost
Oracle stock has plunged nearly 60% from its September 2025 high, even as the company's revenue surged from $42.4 billion in fiscal 2022 to $67.4 billion in fiscal 2026. The growth was fueled by its cloud infrastructure unit, OCI, which saw sales jump 121% to $7.4 billion in the latest quarter. Its remaining performance obligation, a measure of contracted future revenue, hit $664 billion.
But the costs of building AI data centers are enormous. Oracle is spending $95 billion on capital expenditures this year, far more than its business generates. In the latest quarter, free cash flow was negative $5.4 billion, and for every $1 in capex, Oracle only generates 60 cents in cash.
To bridge the gap, Oracle has taken on $125 billion in long-term debt and has $288 billion in data-center lease commitments not yet on the balance sheet. Recently, the company tried to invoke force majeure to delay lease payments for Project Jupiter, a massive data center campus, if it isn't ready by March 2028.
This financial strain makes Oracle the odd one out among tech megacaps like Microsoft, Amazon, Alphabet, and Meta, which are also spending heavily on AI but have stronger balance sheets and are trading much closer to their highs.
Why It Matters: The Risk of a Bet-the-Farm AI Strategy
Oracle's aggressive AI build-out could pay off big if everything goes according to plan, but the company is taking on significantly more risk than its peers. The negative free cash flow and heavy debt load mean Oracle has little margin for error. If the AI boom slows or if projects like Project Jupiter face delays, Oracle could be stuck paying hefty leases without the revenue to cover them.
Compared to Microsoft, Amazon, Alphabet, and Meta, Oracle's financial position is much more precarious. Those companies generate tens of billions in free cash flow and can fund their AI investments more comfortably. Oracle, on the other hand, is stretching its balance sheet and even resorting to dilutive stock sales.
For investors, the 60% drop might look like a buying opportunity, but the underlying risks are substantial. The stock could rebound if AI demand remains strong and Oracle executes flawlessly, but the downside is equally significant. This is not a risk-reward profile I'm comfortable with.
Source: The Motley Fool
Analysis generated by Bobby AI quantitative model, reviewed and edited by our research team. This is not financial advice. Always do your own research before making investment decisions.
Bobby Insight
Avoid Oracle stock for now; the financial risks outweigh the potential AI upside.
Oracle's negative free cash flow, massive debt, and lease commitments make it highly vulnerable if AI spending slows. While the stock is down 60%, the underlying issues are not fully resolved, and better opportunities exist in other hyperscalers with stronger balance sheets.
What This Means for Me
