Oracle Corporation (ORCL) saw its shares fall by 3.8% on Friday, closing at $150.52, as investors grappled with the implications of the company’s substantial artificial intelligence (AI) backlog against the backdrop of rising financing costs. This decline stands out against a stable performance from other tech giants, underscoring investor concerns about Oracle’s aggressive strategy in the AI space.
Despite the increasing demand for its cloud infrastructure services, Oracle is facing challenges to balance growth with immediate cash generation. To support its ambitious expansion, the company is seeking to secure approximately $40 billion in additional funding for fiscal 2027. This funding will be sourced through a combination of debt and equity, as Oracle anticipates capital expenditures that could reach as high as $95 billion.
AI Demand Drives Oracle Growth
Oracle’s core business continues to show impressive growth, especially within its cloud infrastructure segment. In fiscal 2026, the company reported a 17% increase in overall revenue, amounting to $67.4 billion, with cloud revenue soaring by 39% to $34 billion. The standout performance came from the cloud infrastructure sector, which experienced a staggering 77% growth, generating $18.1 billion in revenue. This surge reflects the skyrocketing demand for computing power from organizations developing and deploying AI applications.
In addition, Oracle’s remaining performance obligations have skyrocketed to $638 billion, marking a 363% increase from the previous year. While this figure presents a promising outlook for future revenue, it raises critical questions about how quickly Oracle can convert these commitments into actual cash flow.
$40 Billion Funding Need Raises Questions
The scale of Oracle’s investment raises significant financing challenges. In fiscal 2026, the company generated $32 billion in operating cash flow, yet its capital expenditures reached approximately $55.7 billion. Consequently, Oracle reported a negative free cash flow of $23.7 billion, despite its robust revenue growth.
To address its funding needs, Oracle plans to raise around $40 billion within the current fiscal year, which includes a previously announced $20 billion at-the-market equity program. This move, however, could lead to shareholder dilution, while additional borrowing may exacerbate the company’s already significant debt load.
As of now, Oracle’s reported debt stands at $129.5 billion, translating to approximately 4.3 times EBITDA. Additionally, the company holds substantial lease obligations for its data centers, estimated to be around $260 billion.
Credit Ratings Add Pressure
The financing strategy is drawing increased scrutiny from credit-rating agencies, with S&P Global Ratings downgrading Oracle’s rating to BBB- in July, placing it just above speculative-grade territory. This rating is critical, as elevated leverage could lead to higher borrowing costs, complicating Oracle’s ambitious infrastructure expansion plans.
With Oracle’s stock already under pressure, the market is keenly observing whether the company can transform its AI opportunities into tangible returns. The path ahead may hinge not only on winning more AI business but also on how effectively Oracle can finance, build, and monetize this burgeoning demand.
