Oracle's stock is seeing its worst run in a quarter-century as this key AI debate rages on

By Christine Ji

While Oracle's cloud-infrastructure business is growing rapidly, a massive $95 billion spending plan and a physical bottleneck in data-center deliveries are giving investors pause

Oracle's remaining performance obligations skyrocketed to $638 billion in its latest quarter.

Shares of Oracle moved sharply lower Thursday, showcasing Wall Street's negative reaction to the company's latest earnings report.

While Oracle (ORCL) beat the revenue and earnings benchmarks set by analysts, the stock fell 8.5% as investors wrestle with a crucial uncertainty: Can Oracle convert its artificial-intelligence backlog into actual revenue?

Thursday's price action puts Oracle's stock on track to fall 25% over five trading sessions, which would make for its worst five-day stretch since 2001, according to Dow Jones Market Data.

In the fiscal fourth quarter, Oracle's remaining performance obligations, or the value of contracts not yet recognized as revenue, skyrocketed to $638 billion, with the company reporting $85 billion in net new additions.

While Oracle's backlog continues to ramp, the "key debate" is whether those contracts can be converted to revenue, Jefferies analyst Brent Thill wrote in a Wednesday note, highlighting that Oracle's quarterly revenue beat was much smaller in magnitude than the one a year earlier.

Oracle reported $19.18 billion in revenue, beating consensus estimates by $81 million, or less than 1%. Last year, the company posted revenue that was over $300 million higher than the consensus view, Thill noted.

Additionally, Oracle's legacy software business experienced a slowdown in the most recent quarter. Growth in cloud applications decelerated by 2 percentage points on a sequential basis, to 9%, "keeping the SaaSpocalypse theory alive," according to Thill. He was referring to a term for gloom around the software sector.

Management left its fiscal 2027 revenue guidance unchanged at $90 billion, disappointing bulls who had expected a lift.

Read more: Oracle's stock slides after earnings, as the steep price of AI spooks investors

In the meantime, Oracle is planning up to $95 billion in capital expenditures on its AI buildout in fiscal 2027, deepening its negative free-cash-flow levels.

This reignited longstanding concerns about overspending. In a Tuesday note, Morgan Stanley analyst Todd Castagno highlighted a mismatch between the speed at which Oracle and other hyperscalers are spending on physical infrastructure and how slowly that infrastructure is turning into recognized sales. For the quarter that ended in February, Oracle logged $261 billion in leases not yet commenced, indicating that the company has a massive physical construction queue to clear before it can recognize that revenue, according to Morgan Stanley. Oracle has the largest backlog of all the hyperscalers.

Read: Big Tech's $700 billion spending on AI this year is called the 'greatest capital misallocation in history'

While Thill believes the selloff is overdone, he and his team "acknowledge the concerns around RPO to revenue conversion and the slowdown in cloud apps," he wrote.

Still, he believes Oracle's AI infrastructure story "remains intact." Oracle Cloud Infrastructure, the company's cloud-computing business, grew 93% year over year, beating Wall Street estimates for growth of 89%. Oracle delivered 1.2 gigawatts of data-center capacity to customers in fiscal 2026 and is approaching 1 gigawatt in the first quarter of fiscal 2027 alone.

The stock's sharp move downward is likely due to near-term pressures on gross margins as the company ramps its new data-center projects, according to a Thursday note from TD Cowen analyst Derrick Wood. However, Wood believes OCI should be able to achieve over 100% growth for the next two years as well as long-term AI gross margins in the 30% to 40% range.

On the earnings call, management said that multiple data centers are set to go online in calendar 2027.

Additionally, Oracle's bring-your-own-hardware policy is increasingly contributing to the company's backlog, improving the margin profile of the OCI business, Wood wrote.

-Christine Ji

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06-11-26 1633ET