Oracle’s $638 Billion Backlog Meets a $23.7 Billion Cash Drain: The Market Can’t Decide Which Story to Believe
Published on 07/27/2026 at 14:53 | Redaktion boerse-global.de
Oracle is telling two completely different stories at once. One is about a company that has locked up $638 billion in future revenue through signed contracts, anchored by a $300 billion partnership with OpenAI called Project Stargate. The other is about a company that just burned through $23.7 billion in free cash flow, saw its credit rating downgraded to within one notch of junk by S&P, and has watched its stock shed nearly 64% from a September 2025 peak of €280.70.
Both narratives are factually accurate. And that tension is what makes Oracle one of the most contested names in the market right now.
The shares closed Friday at €101.20, barely 0.14% above the 52-week low of €101.06. Monday brought a modest 2.79% bounce to €104.02, but the stock remains 37.41% lower since the start of the year. The relative strength index sits at 27.6 — deep in oversold territory — and the price is roughly 31% below its 50-day moving average of €148.04. These are the kinds of technical readings that typically precede either a bottom or a fundamental repricing.
The Spending Machine
Oracle’s transformation from database software giant to AI infrastructure provider is costing far more than Wall Street anticipated. Capital expenditures surged to €55.7 billion in fiscal 2026, a 162% increase year-over-year. The result: free cash flow flipped to negative €23.7 billion, an alarming figure for a company of Oracle’s size that is otherwise growing its operating income.
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The credit markets have taken notice. S&P downgraded Oracle to BBB-, just one step above non-investment grade. Moody’s maintained its Baa2 rating but slapped a negative outlook on the company, explicitly citing the pressure that AI-related capital spending is exerting on credit quality.
Oracle is not alone in this spending spree. The four largest cloud providers are expected to invest roughly €700 billion collectively in infrastructure in 2026. But the difference is stark: competitors like Microsoft, Amazon, and Google sit on massive cash reserves, while Oracle carries a much heavier debt load. That is why bond investors are scrutinizing this company more closely than its cash-rich rivals.
The Order Book That Keeps Growing
Yet the spending is not happening in a vacuum. Oracle ended fiscal 2026 with $638 billion in remaining performance obligations — contracts already signed that have not yet been recognized as revenue. The centerpiece is Project Stargate, the five-year, $300 billion deal with OpenAI confirmed in late 2025, which positions Oracle as a key infrastructure and energy partner for the next generation of AI workloads.
Operationally, the company continues to deliver wins. A ten-year software contract with the U.S. Department of Defense is worth up to $7 billion. The partnership with Nvidia remains central, with Blackwell Ultra GPUs and xAI’s Grok models being deployed directly into Oracle’s government cloud regions. In October 2025, Oracle announced it would become the first hyperscaler to operate a public AI supercluster using 50,000 AMD Instinct MI450 chips, diversifying its supply chain beyond Nvidia and Ampere.
The biggest execution risk is not chips — it is power. Zettascale data centers require electricity at levels that traditional grids struggle to supply. Larry Ellison has confirmed that Oracle is planning a gigawatt-scale data center powered by three small modular nuclear reactors. The company has already secured construction permits for all three reactors, putting it ahead of most competitors on the energy front, even if the technology remains unproven at scale.
A Founder’s Shadow
These operational achievements are being overshadowed by a legal headache involving Oracle’s co-founder and largest shareholder. Larry Ellison is facing a lawsuit from twelve U.S. states stemming from his personal $40.4 billion guarantee for his son’s acquisition of Warner Bros. Discovery. That private risk exposure sits uncomfortably alongside a company that needs to rebuild trust in the credit markets.
Insider selling has added to the pressure. Vice Chairman Jeffrey Henley sold 400,000 shares in June at significantly higher prices, a move that likely amplified the downward drift.
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The Analyst View vs. The Market View
The analyst community has not thrown in the towel. The consensus price target stands at €219.10, implying more than a doubling from current levels. Mizuho reaffirmed a $320 target in July 2026, arguing that the market is treating Oracle as if it has a spending problem while ignoring the backlog that has yet to flow into revenue.
But institutional investors are divided. Gabelli Funds cut its position by 21.5% recently, while Waverly Advisors added to its stake. That split mirrors the broader uncertainty.
With a market capitalization of €291.16 billion, Oracle is being valued as if its investment cycle is a burden rather than a bet on $638 billion in contracted future revenue. The next real test comes with fiscal first-quarter 2027 results, expected in early September 2026. That report will show whether the market is ready to start pricing in the Stargate backlog — or whether the skepticism has further to run.
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