Oracle’s $40 Billion Capital Conundrum Overshadows Record Cloud Revenue

Oracle beat Q4 earnings but shares dropped 14% as $55.7B capex, $23.7B free cash deficit, and a $40B capital raise sparked investor concern over AI spending and OpenAI risk.

Oracle shares tumbled more than 14% on Friday, closing at €159.12, even as the software giant delivered fourth-quarter results that beat analyst expectations. The market’s focus has shifted sharply from the company’s swelling order book to the staggering cost of fulfilling it.

Revenue for the fiscal fourth quarter hit $19.18 billion, a 21% year-over-year jump that edged past consensus. Adjusted earnings per share came in at $2.11, well ahead of the $1.96 analysts had pencilled in. The powerhouse was Oracle Cloud Infrastructure, which surged 93% to $5.8 billion in revenue.

Yet investors are fixated on the bill for that growth. Capital expenditures for the full 2026 fiscal year reached $55.7 billion, an eye-watering 162% increase from the prior year. The result was a free cash flow deficit of $23.7 billion — a hole that has rattled shareholders accustomed to Oracle’s historical cash generation.

A Backlog That Doubles as a Liability

Oracle’s remaining performance obligations have ballooned to $638 billion, a staggering 363% increase from a year earlier. In the final quarter alone, the company signed new AI infrastructure contracts worth $67 billion. That would normally be cause for celebration, but the market is asking a harder question: how quickly can these commitments be turned into actual revenue?

The company’s planned investment for fiscal 2027 only deepens the concern. Management has guided for capital spending of at least $70 billion, with some estimates running as high as $95 billion. To bridge the gap, Oracle is planning a $40 billion capital raise, roughly half of which is expected to come from debt and the remaining $20 billion through new equity. That dilution threat is what triggered the selloff.

Adding to the unease is a heavy concentration risk. About $300 billion of the backlog is tied to OpenAI, the ChatGPT developer that is itself burning cash and operating with negative margins. Some analysts question whether the start-up’s financial capacity will be sufficient to sustain such a massive contractual commitment.

Mounting Debt and Margin Pressure

Oracle’s balance sheet already carries roughly $130 billion in loans, plus another $135 billion in long-term lease obligations for data centres. The combined debt load has turned what was once a steady, high-margin software business into a capital-intensive infrastructure play.

Chief Financial Officer Hilary Maxson has signalled that gross margins could take a hit in fiscal 2027 as the company aggressively builds out data centres for large customers such as OpenAI and Meta Platforms Inc. That margin compression, combined with the equity dilution, has left many investors reassessing the near-term payoff.

Wall Street’s Split Screen

The analyst community remains divided. Bernstein raised its price target to $325, citing the unprecedented growth in the backlog as evidence of long-term demand. Guggenheim is even more bullish with a $400 target, pointing to a GPU utilisation rate of 97.5% as proof that spending is being driven by real customer need.

On the other side, cautious voices warn that the heavy investment cycle will compress returns for years. The stock now trades at roughly €157.38, about 44% below its 52-week high of €280.70 reached in September 2025. The relative strength index sits at 41.4 — approaching oversold territory but not yet flashing a clear buy signal.

For the moment, Oracle is caught between a record order book that promises future revenue and a capital plan that forces current shareholders to foot the bill. The next quarterly report in the autumn will reveal whether management can start converting that $638 billion promise into cash flow — or whether the financial strain will weigh on the stock for quarters to come.