Oracle Faces Investor Skepticism Amid Debt and Legal Concerns

Oracle US68389X1054

Oracle finds itself navigating a complex landscape where robust operational performance clashes with significant financial and legal headwinds. While the technology giant reports surging demand in its cloud and AI divisions, its stock is contending with a perfect storm of a major lawsuit, soaring debt insurance costs, and a high-profile bearish bet from a famed investor. Shares closed at $189.86 on Thursday, marking a daily decline of nearly two percent.

On the operational front, Oracle's business is firing on all cylinders. For its most recent quarter, ended November 30, the company posted revenue of $16.06 billion, a 14.2 percent year-over-year increase. Net income rose to $6.14 billion. A particularly striking metric is the Remaining Performance Obligations (RPO), a key indicator of future revenue, which ballooned to approximately $523 billion. This quadrupling from the prior year is largely driven by enormous demand for cloud and AI infrastructure, underscored by a landmark $300 billion partnership with OpenAI.

Despite this strength, market focus has shifted to the company's financial structure. With total debt estimated between $108 and $120 billion, Oracle is now considered the most heavily indebted major technology firm. The costs for insuring against a default on this debt, known as Credit Default Swaps (CDS), have recently spiked to levels not seen since the 2009 financial crisis.

Lawsuit and Financing Moves Draw Scrutiny

Central to the current investor unease is a class-action lawsuit filed by bondholders in a New York court. The plaintiffs, led by the Ohio Carpenters Pension Fund, allege that Oracle misled investors during an $18 billion bond issuance on September 25, 2025. The suit claims the company failed to disclose that its capital requirements for AI infrastructure expansion were substantially greater than presented.

Merely seven weeks after that bond sale, Oracle was compelled to secure an additional $38 billion in bank loans. This rapid succession of major financing activities triggered a sharp reaction in credit markets, sending the prices of the affected bonds downward.

Prominent Short Seller Adds to Pressure

Adding a layer of market drama, Michael Burry—the investor renowned for his successful bet against the U.S. housing market before the 2008 crisis—has established a short position against Oracle. This move, a direct wager on a declining share price, signals his belief that the risks associated with Oracle's debt-fueled growth strategy are not fully reflected in its current valuation. His prominent skepticism contributes to the cautious sentiment among both institutional and retail investors.

This sentiment is echoed by insider selling activity. Over the past three months, Oracle insiders have been net sellers of 126,588 shares, realizing proceeds of roughly $33.16 million. President Mark Hurd alone disposed of 15,000 shares in December, generating nearly $3 million.

Analyst Outlook: Cautious Optimism Prevails

Wall Street analysts maintain a generally positive, if slightly tempered, outlook. KeyBanc recently reaffirmed its "Buy" rating with a $300 price target, suggesting the recent share price weakness may present a buying opportunity. UBS adjusted its price target down from $300 to $280, citing an elevated risk profile, but also maintained a "Buy" recommendation. Barclays similarly confirmed its positive stance on January 12.

The fundamental question for the market is whether the colossal growth potential of Oracle's AI and cloud business can ultimately outweigh the acute balance sheet risks and legal uncertainties. For now, concerns that capital costs for necessary infrastructure could spiral are dominating the narrative. The stock has shed over four percent in the past week and trades approximately 32 percent below its 52-week high of $280.70.