Oracle’s $638 Billion Backlog Can’t Mask the Cash Burn That Has S&P Worried
Published on 07/23/2026 at 06:12 | Redaktion boerse-global.de
Oracle has built itself into one of the most compelling contradictions in the technology sector. The company sits on a $638 billion mountain of contracted but unbilled work — a figure that ballooned 363 percent year-over-year — yet its stock has shed 33.6 percent since January, and its credit rating just took a hit that could make financing the very infrastructure behind that backlog significantly more expensive.
The disconnect between Oracle’s long-term promise and its near-term financial strain has rarely been this stark. Shares closed at €110.36 on Wednesday, barely 5 percent above the 52-week low of €105.10 set on July 17. At roughly 16 times forward earnings, the valuation looks cheap by almost any historical measure. But cheap doesn’t always mean safe.
The Infrastructure Tab Is Coming Due
Oracle’s transformation from a database vendor into the operating system for enterprise artificial intelligence requires physical plant on a scale the company has never attempted. Management flagged capital expenditures of up to $70 billion for fiscal 2027, with $40 billion to be raised through a combination of debt and equity — $20 billion of that from an already announced stock placement.
That spending spree is already straining the balance sheet. Oracle ended the fourth quarter with $32 billion in cash against $130 billion in debt, pushing net leverage to 2.67 times adjusted EBITDA. The additional $20 billion in planned borrowing could push that ratio toward 3 times, a threshold that typically triggers alarm among credit analysts.
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S&P Global Ratings acted on July 9, downgrading Oracle from BBB to BBB- — one notch above junk territory. The move was driven by the sheer scale of the AI infrastructure buildout and the risk that the cash flow needed to service all that debt won’t materialize fast enough.
The downgrade has real-world consequences. Local regulators in Wisconsin are now demanding a multibillion-dollar security deposit for a data center project there — collateral the state wants in place precisely because Oracle’s creditworthiness has slipped. It’s a concrete example of how a paper downgrade translates into hard cash tied up in escrow rather than deployed for growth.
The Backlog That Could Save Everything
The bull case rests entirely on the $638 billion in remaining performance obligations. These are contracts already signed where the customer has committed to pay — Oracle just hasn’t delivered the services yet. Management expects to convert 12 percent of that backlog, or $76.6 billion, into revenue over the next twelve months. That would represent a meaningful step up from the $67 billion in revenue the company reported in fiscal 2026.
The quality of those backlog additions matters. The bulk of the growth over the past two quarters came from large-scale AI contracts where customers either prepaid for GPUs or brought their own chips. That structure suggests genuine demand rather than speculative capacity reservations, which gives the revenue pipeline more credibility than some critics assume.
The fourth-quarter results support the optimistic view. Revenue hit $19.2 billion, up 21 percent, while GAAP earnings per share rose roughly 21 percent to $1.45. The cloud infrastructure business OCI was the standout, with revenue surging 93 percent to $5.8 billion, pulling total cloud revenue up 47 percent.
Analysts see enough here to justify a consensus price target of €218.39 to €220.67 — roughly double the current share price. But those targets were set before the downgrade and before the market fully priced in the cash burn that accompanied the backlog build.
The Cash Flow Problem That Won’t Go Away
Here is the tension that the stock price is trying to resolve. Oracle generated negative free cash flow of $23.7 billion in fiscal 2026. The company is spending faster than it collects, and the spending is accelerating. The $43 billion in new debt taken on during the year is a symptom of a business model that requires massive upfront investment before the revenue streams begin to flow.
The bear case is straightforward: if the conversion of RPO into revenue and cash flow doesn’t accelerate, Oracle will need to keep borrowing or diluting shareholders to fund its buildout. The planned $40 billion capital raise — half debt, half equity — already signals that management sees the gap. A second S&P downgrade would push Oracle into high-yield territory, raising borrowing costs further and potentially triggering forced selling by investment-grade bond mandates.
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There is also a legal overhang. A class-action lawsuit pending in Delaware federal court accuses Oracle of securities fraud, alleging the company misled investors about the risks its AI strategy posed to its debt load, credit rating, and cash flow. No ruling has been issued, but the case adds another layer of uncertainty to an already complicated risk profile.
Technical Signals Point Both Ways
The stock is deeply oversold by any measure. The relative strength index sits at 32.7 to 32.9, territory that has historically preceded at least a short-term bounce. The shares trade 26.5 percent below their 50-day moving average and 31.1 percent below the 200-day average — gaps that typically attract mean-reversion traders.
But oversold conditions can persist when the fundamental headwinds are this strong. The annualized volatility of 46 percent tells the story of a stock that the market doesn’t know how to price. The gap between analyst targets and actual market behavior is unusually wide, suggesting that the sell-side has not fully incorporated the credit story into its models.
The next real test comes with the fiscal first-quarter 2027 earnings report. Investors will be watching two numbers above all others: the conversion rate on those $638 billion in RPO and the trajectory of free cash flow. If Oracle can show it is turning backlog into cash faster than it is burning through its balance sheet, the bull case has room to reassert itself. If the cash burn deepens, the stock could test new lows before the infrastructure buildout ever delivers the returns management is betting on.
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