Oracle's Two-Front War: A Credit Downgrade and a $23.7 Billion Cash Drain Test the AI Narrative
Published on 08/25/2026 at 08:12 | Redaktion boerse-global.de
There is a widening gulf between the story Oracle tells about its future and the one its balance sheet is currently writing. On paper, the company holds a backlog that would make most technology executives envious—$638 billion in remaining performance obligations, a figure up 363 percent year over year, with roughly $300 billion of that tied to OpenAI contracts alone. Yet the financial mechanics underneath that promise are growing harder to ignore.
The market delivered its verdict on Monday. Shares slipped between 2.5 and 3 percent depending on the trading venue, settling at €122.34, after two pieces of news collided: a negative free cash flow of $23.7 billion for the fiscal year and a credit downgrade from S&P to BBB-. The rating agency pointed to total debt exceeding $122 billion, with leverage sitting at five times EBITDA. For a company spending over $55 billion on capital expenditures, the arithmetic is becoming uncomfortable.
The Rating Agencies Have Started Asking Questions
The S&P move on Monday was not a routine adjustment. It represents a professional reassessment of risk by an institution that evaluates such metrics for a living, and it lands at a moment when Oracle's aggressive investment pace is colliding with its cash generation. The gross margin remains respectable at 65.8 percent, but that figure does little to answer whether the current building spree can sustain itself.
The stock now trades roughly 59 percent below its 52-week high of €294.85, a decline that has erased much of the enthusiasm that pushed the shares to record levels less than a year ago. Year-to-date, the stock is down 26 percent, and over twelve months the loss stretches to 40 percent. The recovery from the late-July trough of €100.76 is looking increasingly fragile.
A Bull Case That Refuses to Fold
Dismissing the optimistic reading entirely would be a mistake. The fourth fiscal quarter delivered cloud infrastructure revenue growth of 93 percent, reaching $5.8 billion—a pace that few software companies can match. The expanded partnership with Amazon Web Services, sealed two weeks ago, will make Oracle AI Database@AWS available across 22 AWS regions, an acknowledgment from a direct competitor that Oracle's database infrastructure remains essential.
Institutional investors are also voting with their wallets. Steve Cohen's Point72 increased its Oracle stake by 188 percent in the second quarter, building a position of 3.41 million shares worth roughly $500 million, partially funded by selling Broadcom holdings. Michael Burry, meanwhile, disclosed a short position in mid-August, arguing that Oracle is stretching out depreciation on its AI graphics chips to flatter reported earnings.
The analyst community leans bullish on balance. The average price target sits at $252.87, with outliers as high as $400. DBS analyst Andy Yu reaffirmed a buy rating on Monday with a $310 target, citing sustained demand for cloud infrastructure. These targets, however, were largely set before the S&P downgrade made the balance-sheet risks more visible.
The Physical Costs of the AI Buildout
Beyond the financial metrics lies a less discussed constraint: the physical resources required to build this infrastructure. Project Jupiter in New Mexico, a data center supported by Oracle and OpenAI, is expected to consume 13.5 million gallons of non-potable water over 15 years, with 11 million gallons needed just for the initial filling of cooling systems. The project has hit regulatory turbulence—New Mexico's Supreme Court issued two unanimous emergency orders on August 23 halting the air quality permitting process, and the presiding hearing officer recused himself on Monday following a recusal motion from environmental groups. Democratic Representative Melanie Stansbury has also requested clarity on the water supply.
These delays may appear minor against Oracle's corporate scale, but they illustrate how politically and regulatorily exposed the AI construction wave has become. The company is simultaneously cutting jobs—reports of impending layoffs surfaced in mid-August—while pouring billions into new data centers.
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The September 8 Reckoning
The fundamental question hanging over Oracle is whether its enormous backlog will convert into actual cash or simply generate further capital requirements. The company reports first-quarter fiscal 2027 earnings on September 8, with consensus estimates of $19.14 billion in revenue and earnings per share of $1.72.
The revenue figure matters less than whether management can demonstrate that the backlog is becoming cash rather than another call on capital. The bulls see a company whose order book is booked business, not vague aspiration. The bears see a financing model straining under its own weight, with a downgrade, a double-digit billion cash outflow, and local regulatory blockades that do not fit the narrative of a carefree AI winner.
Oracle has become a test case for how much benefit of the doubt the market will extend to the AI boom before demanding payment. The stock's decline suggests investors are already pricing in these risks. Whether the September 8 numbers can reverse that calculus remains the open question—one that will determine whether Oracle's story is one of temporary growing pains or a structural mismatch between ambition and capital.
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