Oracle’s Heavy Debt Load Clouds Its Cloud Ambitions

Oracle Corporation has faced significant headwinds as it moves through its 2026 fiscal year. Despite posting a robust annual profit gain of 17%, the company's share price remains approximately 45% below its peak from September. This divergence highlights investor concerns centered on substantial debt, multi-billion dollar data center investments, and a precarious reliance on a single major client: OpenAI.

A deep dive into the figures reveals a critical vulnerability. Oracle's remaining performance obligation (RPO) skyrocketed by 438% to $523 billion. However, market analysts estimate that a staggering $300 billion of this backlog is tied to one customer—OpenAI. This extreme client concentration is a primary source of investor anxiety. OpenAI itself continues to operate at a significant loss, with reported losses reaching $25 billion in the first three quarters of 2025 alone. Oracle's aggressive growth strategy could be severely undermined if OpenAI encounters difficulties in monetizing its AI models or securing further capital.

Second-Quarter Results Present a Mixed Picture

The company's financial report for Q2 of fiscal 2026 delivered conflicting signals. Revenue climbed 14% to $16.1 billion, yet this figure fell short of market expectations. More alarmingly, free cash flow turned deeply negative, plunging to minus $10 billion. This cash burn is directly linked to Oracle's accelerated capital expenditure. The company has raised its full-year investment forecast from $35 billion to $50 billion, primarily to fund a massive expansion of its data center capacity.

Within this spending surge, the Cloud Infrastructure (IaaS) unit showed strong growth, with revenue increasing 68% to $4.1 billion. Nevertheless, the sheer scale of the infrastructure build-out is placing undeniable pressure on the balance sheet.

Credit Markets Signal Growing Concern

The nervousness is reflected in the debt markets. In December, the cost to insure Oracle's bonds against default, known as credit default swaps, reached 1.41%. This level represents the highest point in 16 years, with risk premiums last seen during the 2008/2009 financial crisis. In response, management is exploring alternative financing models, including "Bring-Your-Own-Chip" agreements, vendor financing programs, and GPU leasing arrangements. The firm has reiterated its commitment to maintaining its investment-grade credit rating.

Should investors sell immediately? Or is it worth buying Oracle?

Divergent Views from Wall Street Analysts

Equity analysts are divided on the stock's outlook. Mizuho and Jefferies maintain a bullish stance, issuing price targets of $400. In contrast, Goldman Sachs reduced its target from $320 to $220, assigning a Neutral rating, while RBC Capital Markets cut its target from $310 to $250 with a Hold recommendation.

The consensus among 34 covering analysts, however, still leans positive. There are 24 Buy ratings compared to ten Hold recommendations. The average price target stands at $312, implying a potential upside of roughly 60% from current trading levels.

A potential bright spot is Oracle's recent participation in a consortium aiming to acquire 45% of TikTok's U.S. operations. Market experts view this move favorably, as it could diversify Oracle's client base and generate incremental cloud revenue.

The Long-Term Roadmap

Looking ahead, Oracle anticipates that its OCI revenue growth will accelerate meaningfully starting in fiscal year 2028. This timeline coincides with the planned completion of the majority of its 72 planned multicloud data centers. Company executives emphasize that the current investment cycle has a defined endpoint, after which the contracted revenue streams are expected to generate positive cash flow.

The next quarterly earnings report is scheduled for March 9, 2026. Until then, the central question for investors remains whether Oracle can successfully manage its debt burden and reduce its critical dependency on OpenAI.