Oracle’s AI Ambitions Face Scrutiny Over Debt and Legal Challenges

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While Oracle rides the artificial intelligence wave, its financial strategy and transparency are drawing increased investor skepticism. Recent developments, including a bondholder lawsuit and a notable short position from a famous hedge fund manager, are casting a shadow over the company's aggressive push into cloud and AI infrastructure.

A proposed class action lawsuit filed in a New York federal court this Wednesday has brought Oracle's funding plans into sharp relief. Bond investors who purchased $18 billion in notes last September allege the company withheld crucial information regarding its future capital requirements.

The core allegations state that Oracle failed to disclose that significant additional debt would be necessary to fund its AI infrastructure expansion. This omission, the plaintiffs argue, led to financial losses as the market underestimated the capital intensity of the AI plans. Notably, the lawsuit names not only the corporation but also co-founder Larry Ellison as a defendant, alongside the underwriting banks involved in the bond issuance.

This legal action turns Oracle's key growth engine—its AI infrastructure strategy, bolstered by a major compute deal with OpenAI—into a potential liability. It underscores the mounting pressure on the company to balance aggressive investment with clear communication to the market.

Michael Burry's Bearish Bet Adds to Pressure

Adding to the headwinds is the disclosure of a short position by Michael Burry, the hedge fund manager famed for his role in "The Big Short." Regulatory filings show Burry has built put options against Oracle and engaged in direct short selling of the stock over the past six months.

Burry's skepticism appears rooted in the combination of soaring investments and a substantial debt load. Oracle currently carries approximately $95 billion in debt on its balance sheet, a figure that gives pause to many investors considering the capital-intensive nature of data center construction.

Key points of concern highlighted by Burry's position include:
* The current pace and direction of capital expenditure
* The escalating debt burden
* Significant capital requirements for both new and existing data centers
* What he perceives as an excessive AI-related valuation premium in the broader market

Together, the lawsuit and the prominent short sale paint a picture of a company pursuing AI growth aggressively but simultaneously accumulating considerable financial risk.

Operational Strength Amidst the Controversy

Despite these challenges, Oracle's recent operational performance remains robust. For its fiscal second quarter 2026, reported on December 10, 2025, the company posted impressive growth metrics:
* Revenue increased 14% year-over-year to $16.1 billion
* Cloud revenue surged 34% to $8.0 billion
* Remaining Performance Obligations (RPO) skyrocketed 438% to $523 billion
* GAAP EPS reached $2.10, a 91% increase
* Non-GAAP EPS was $2.26, up 54%

The company also declared a quarterly dividend of $0.50 per share. These results demonstrate Oracle's powerful leverage to the cloud and AI boom, with the explosive growth in RPO signaling a strong pipeline of future revenue.

This growth, however, is juxtaposed against the $95 billion debt and the heavy ongoing investments in data center capacity. This tension between high growth and high capital expenditure sits at the heart of the current investor debate.

Stock Performance Reflects AI Volatility

Oracle's share price has exhibited significant volatility in recent months. Following a powerful AI-driven rally last year, the stock has surrendered some of those exaggerated gains but remains well above its longer-term levels.

Currently trading at $202.29, the shares stand roughly 82% above their 52-week low but nearly 28% below their peak. This pattern is characteristic of many AI-centric stocks: a powerful upward move followed by sharp corrections as the market attempts to price the true earnings potential of new infrastructure.

Technical indicators point to a challenging environment. The price sits notably above its 50-day moving average and slightly above its 200-day average, while the Relative Strength Index (RSI) reading of 69.3 flirts with overbought territory.

Divergent Analyst Views on Valuation

Wall Street analysts are divided in their assessment, reflecting the company's complex risk-reward profile.
* Jefferies maintains a notably bullish $400 price target, emphasizing the long-term potential of Oracle's AI infrastructure.
* UBS recently reduced its target from $325 to $280 but continues to recommend buying the shares.
* KeyBanc Capital Markets views the stock as "undervalued" following its pullback and suggests a sum-of-the-parts valuation: approximately $125 per share for the core business, plus an additional $75–$80 per share for the Infrastructure-as-a-Service (IaaS) division based on current market multiples.

The analyst spectrum ranges from clear optimism to cautious constructive views. A significant portion of Oracle's current market valuation is already predicated on the future success of its AI and infrastructure initiatives, which are yet to be fully realized.

Board Reshuffle and Forward Look

Amid the financial and legal discussions, Oracle has streamlined its board of directors, saying farewell to two of its longest-serving members and reducing the board size to 12. This governance refresh occurs at a time when oversight questions are gaining prominence, especially for companies undertaking large, debt-funded transformation projects.

All eyes now turn to the next earnings report scheduled for March 9, 2026. This update will be critical in determining whether Oracle can sustain its strong cloud and AI momentum and whether the current legal and strategic concerns will intensify or fade. For now, robust operational metrics, high leverage, an expansive AI investment campaign, and growing legal risks are colliding, defining the current opportunity-risk profile for Oracle's stock.