Oracle Stock Halves on AI Bets, Debt Concerns Outweigh Valuation Gains

Oracle's stock decline reflects a widening gap between the company's operational strength and the financial risk it has incurred to chase AI growth. Nine months ago, Oracle was among the hottest AI stocks, but the narrative has shifted sharply. The company's most recent earnings showed solid fundamentals: revenue up 21% year over year and OCI up 93%, while its remaining performance obligations (RPO) backlog surged 363% to hit $638 billion, with $85 billion added in a single quarter alone. This backlog was the catalyst for the stock's September surge and remains the bull case for a cheap re-entry—the P/E ratio has compressed from 76 to 22, now trading well below the five-year average of 34, and 84% of Wall Street analysts still rate the stock a buy.

Yet the bear case has proven more compelling to markets. To deliver on that massive backlog, Oracle has built a balance sheet that looks increasingly precarious: $130 billion in debt against only $43 billion in equity (a 300% debt-to-equity ratio), free cash flow negative $24.5 billion through fiscal 2026, and a plan to borrow another $40 billion to $50 billion more this year. The debt market is signaling alarm—the cost to insure Oracle's debt against default hit record levels, and its bonds, while still investment-grade, are trading like junk. The defining vulnerability is that roughly $300 billion of the backlog (nearly half) depends on a single customer: OpenAI. OpenAI's finances are in severe distress—$21 billion in losses against $13 billion in sales, with compute commitments of roughly $1 trillion against annual sales of $13 billion (77 times current revenue). OpenAI's delayed IPO has reignited doubts about its ability to fund those commitments, and Oracle's stock suffered its worst week in years in response. The core question investors face is whether Oracle's operational growth and cheap valuation offset the concentration risk and debt burden tied to a financially unstable anchor customer.