Oracle’s Pentagon Windfall Can’t Stop the Bleeding as Debt Fears Overshadow a $638 Billion Backlog
Published on 07/24/2026 at 12:21 | Redaktion boerse-global.de
Oracle secured a massive ten-year contract with the U.S. Department of Defense worth up to $6.99 billion on July 23, 2026 — the largest direct enterprise software agreement the Pentagon has ever awarded the company. Yet the stock barely flinched. Shares closed at €105.56 that day, down 4.3%, hovering just 0.48% above a fresh 52-week low of €105.06. The market’s indifference to a contract that covers everything from on-premises licenses to cloud services for more than 3.4 million defense employees tells you everything about the forces currently dragging Oracle down.
The Pentagon deal, which runs five years with a five-year option, consolidates software procurement for the Department of War, the Coast Guard, and the intelligence community under a single framework. Oracle says it will simplify purchasing across the sprawling organization; the Pentagon estimates taxpayer savings of at least $441 million. It follows a similar $9.69 billion agreement with Microsoft in May and, as CNBC noted, carries political overtones — Oracle co-founder Larry Ellison is a known Trump supporter. But none of that has shifted the narrative.
What has the market’s attention is a balance sheet under siege. The stock has lost 34.73% since the start of the year and nearly half its value over the past twelve months. The past 30 days alone delivered a 21.87% decline. At €108.48 — the level after a 2.77% bounce from the 52-week low — Oracle trades 61.35% below its September 2025 record of €280.70. The Relative Strength Index sits at 33.6, signaling oversold conditions that explain the modest rebound but do little to address the underlying crisis.
That crisis is financial, not operational. The cloud infrastructure business is booming: revenue grew 93% in the June quarter, and cloud now accounts for 52% of total sales. Total revenue rose 20.6% to $19.18 billion, beating estimates, while earnings per share of $2.11 topped the consensus of $1.96. The legacy software segment shrank 2%, but the pivot to cloud is clearly working. The problem is how Oracle is paying for it.
Should investors sell immediately? Or is it worth buying Oracle?
The company’s remaining performance obligations — the backlog of contracted but unfulfilled orders — exploded to $638 billion, a 363% year-over-year surge. More than half of that mountain is tied to a single customer: OpenAI, through the $300 billion Stargate deal. To finance this buildout, Oracle has taken on over $108 billion in debt, with capital expenditures running at roughly $50 billion this year alone. The result is a negative free cash flow of $24 billion and an operating capex of $56 billion. S&P Global downgraded Oracle to BBB- in early July, just one notch above junk status. Credit default swaps trade at distressed levels.
The leverage ratios are extreme by any standard. Oracle’s debt-to-equity ratio stands at 500%, supported by just $20 billion in equity. By contrast, Microsoft and Google each have more than $340 billion in equity and finance much of their AI infrastructure off-balance-sheet. A Benzinga report highlighted that Oracle has accumulated $273.3 billion in off-balance-sheet liabilities, part of a broader $1.65 trillion industry-wide shadow debt pile among tech giants. Insider sales totaling $63.7 million over the past three months add another layer of unease.
Guggenheim analyst John DiFucci remains the most vocal bull, arguing there is “no discernible good reason” for the selloff. He points to the $638 billion backlog as proof that the cloud bet is paying off, and maintains a $400 price target. But he also lays out conditions for a recovery: Oracle must prove quarterly that its cloud infrastructure margins stay between 30% and 40%, GPU utilization holds near 97.5%, and the balance sheet can absorb $40 billion in capital raises without another downgrade. Those are not trivial hurdles.
Oracle at a turning point? This analysis reveals what investors need to know now.
On the other side, bears see a company financing a bet that hasn’t yet cashed. The 30-day annualized volatility of nearly 45% reflects a market that has lost confidence in near-term direction. The stock trades 26.79% below its 50-day moving average and 31.87% below the 200-day line. The average analyst target of €219.22 — more than double the current price — suggests Wall Street still sees long-term potential, but targets often lag when credit stories shift rapidly. CLSA rates the stock a Hold with a $145 target, while Mizuho sees potential for the stock to more than double from current levels. The consensus sits at a moderate Buy with a $265.03 target, but the wide dispersion shows how divided opinion has become.
The Pentagon contract adds a predictable, multiyear revenue stream from the public sector, but it doesn’t change the math on the balance sheet. Oracle’s management is sticking to its fiscal 2027 targets of $90 billion in revenue and $8.05 in non-GAAP earnings per share, and the backlog supports that ambition. But until the company demonstrates that cloud margins and utilization can convert that backlog into free cash flow fast enough to service its debt load, every oversold bounce will feel more like technical relief than a turning point. The bulls and bears are both right — just on different time horizons.
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