Oracle’s High-Stakes Gamble: Debt-Fueled AI Expansion Faces Scrutiny

Oracle US68389X1054

A stark divergence of opinion has emerged among prominent market figures regarding Oracle's future. While Goldman Sachs has initiated bullish coverage, famed investor Michael Burry is betting against the software giant, creating a compelling narrative around the company's aggressive, debt-funded strategy.

Goldman Sachs upgraded its rating on Oracle shares from "Neutral" to "Buy" this week. Analyst Gabriela Borges presented the company as an underappreciated beneficiary of the artificial intelligence revolution. The core of her argument centers on Oracle's claimed technological edge in cloud infrastructure designed for computationally intensive AI workloads. The firm is pinning its growth prospects on a massive 1.2-gigawatt data center complex in Abilene, which it believes will capture disproportionate market share in the cloud sector over the next three years.

Goldman's price target of $240 suggests an approximate 17% upside. Some analysts are even more optimistic; Jefferies has floated a $400 price target as a realistic possibility. The current consensus price target among analysts sits at $305.50.

The Bear Thesis: A Precarious Financial Structure

On the opposite side of the trade is Michael Burry, the investor renowned for his successful bet against the U.S. housing market in 2008. Through put options and short positions, Burry is wagering that Oracle will decline. His critique focuses on the company's financial leverage. Unlike well-capitalized rivals such as Microsoft or Alphabet, Oracle is financing its ambitious growth primarily through debt. Burry views the balance sheet as fragile, the debt load as overwhelming, and the overall strategy as excessively risky.

He directs his skepticism specifically at the company's aggressive AI push, which he interprets as an overextended, ego-driven capital burn. Should demand for these services soften or if significant delays occur in the infrastructure build-out, Burry believes the debt burden could become an existential threat.

Financial Results Highlight the Tension

The company's performance for the second quarter of fiscal year 2026 underscores this dichotomy. Top and bottom-line results were strong: revenue jumped 14% to $16.1 billion, while earnings per share reached $2.26. The cloud infrastructure (IaaS) business was a standout, exploding 68% to $4.1 billion. The backlog of contracted future revenue, known as Remaining Performance Obligations, nearly quadrupled to $523 billion.

However, the balance sheet reveals significant strain:

• Total Debt: $108.1 billion
• Trailing Twelve-Month Free Cash Flow: Negative $13 billion
• Capital Expenditures: Forecast for 2026 raised to $50 billion

Oracle is currently spending more cash than it generates, funding its massive cloud infrastructure expansion through borrowing. This liquidity gap may necessitate further debt issuance.

The Crucial Investment Dilemma

Oracle has secured long-term contracts with major AI players including OpenAI, Meta, and NVIDIA. The $523 billion backlog points to years of guaranteed future revenue. Yet, fulfilling these contracts requires immediate billions in capital investment.

The pivotal question for investors is one of timing and execution. If management can successfully convert these heavy investments into high-margin revenue streams quickly, the debt can be serviced and the share price could reach new highs. Conversely, if the ramp-up of data center capacity faces delays or if profit margins disappoint, the leverage provided by the massive debt could work powerfully in reverse.

The next quarterly report, due on March 11, 2026, will provide a critical update. Until then, the investment thesis for Oracle shares remains a binary proposition: a future AI infrastructure monopolist or an overleveraged growth stock balancing on a knife's edge.